Insurance Advisory – Business Insurances for MSME-An Overview: July 2023
Business Insurance Solutions for MSME: Need & Importance
Over the past few decades, the Micro, Small, and Medium Enterprises (“MSME”) sector in India has become dynamic and active and has become a bedrock of the Indian economy. They are crucial to the growth of the economy and job creation. MSMEs provide numerous employment opportunities at relatively lower capital costs in comparison to larger industries. Compared to large corporations, MSMEs are less likely to be able to acquire bank loans. Instead, they rely on internal finances or cash from friends and family to start and run their businesses at the initial stage. When it comes to new businesses, MSMEs are risk-takers and are exposed to greater risks associated with their ventures.
Due to greater exposure to risks, MSMEs must secure adequate insurance coverage for losses wherever possible. Lately, with the increased awareness of the importance of insurance coverage and technological advancements in processes, demand for MSME insurance has increased.
Benefits of Insurance for MSMEs
- Offers protection from unprecedented risks.
- Acts as a risk mitigation against business operations.
- Enhances the credibility of the insured entity.
- Provides financial support for complex business risk exposures; and
- Crucial for sustainability.
Classification of MSMEs
MSMEs (manufacturing and service entities) (“Insured”) are categorised on the basis of a specific level of investment and turnover. The Government of India has classified MSMEs as:
|Sr. No||Type of Enterprise||Investment||Turnover|
|1.||Micro Enterprise||Not more than Rs.1 Crore||Not more than Rs.5 Crore|
|2.||Small Enterprise||Not more than Rs.10 Crore||Not more than Rs.50 Crore|
|3.||Medium Enterprise||Not more than Rs.50 Crore||Not more than Rs.250 Crore|
Business Insurance Solutions for MSMEs
Employee Benefits Insurances
|Group Mediclaim Insurance Policy||Medical expenses incurred by Insured members due to illness, accidents, or hospitalization.|
|Group Personal Accident Insurance Policy||Expenses incurred due to accidental death, bodily injuries, and partial or total disability, caused solely by violent, accidental, external, and visible means.|
|Group Term Life Insurance Policy||Provides for payment of a fixed amount of money to the nominee or beneficiary of the insured person in case of death of the insured person.|
|Workmen Compensation Insurance Policy||Covers the legal liability of the employer/ contractor/ sub-contractor under the Workmen Compensation Act that arises out of injury, disability or death of an employee/worker which occurs out of or during the course of their employment.|
|Directors & Officers Insurance Policy||Covers claims made against directors and officers of an Insured for alleged wrongful acts such as negligence, errors, employment practices wrongful act, breach of fiduciary duties, etc.|
|Commercial General Liability Insurance Policy||Covers Insured against third-party liability claims for bodily injury, property damage, and advertising injury.|
|Cyber Liability Insurance Policy||Covers financial losses and liabilities of the Insured associated with cyber incidents and data breaches.|
|Crime Insurance Policy||Covers financial losses resulting from a criminal action such as forgery, employee dishonesty, fraudulent funds transfer, computer fraud, money and securities fraud etc.|
|Professional Indemnity Insurance Policy||Covers third-party claims resulting from negligent acts, errors, or omissions in the performance of the professional duties undertaken during the course of the Insured’s business.|
Marine/Transit Insurance Policy
Marine insurance typically covers risks such as theft, damage, loss, fire, accidents, and natural disasters that can happen during transportation regardless of the mode of transportation used (such as by road, air, rail, or sea). The coverage begins when the goods leave the initial location (origin) and continues until the insured goods reach the final destination or the insured party takes possession of such insured goods.
Construction/ Engineering Insurance
|Contractor’s all-risk Insurance Policy/ Erection all-risk insurance policy||Covers risks arising during the course of execution of a project relating to the construction of a building or related to civil engineering works. Includes coverages for accidents resulting in ﬁnancial loss to the Insured, arising from damage to the contract works, construction of plant and machinery as well as any third-party claims.|
Property Asset Insurance
This insurance offers coverage for properties like offices, hotels, educational institutes, warehouses/ godowns, shops, industrial/ manufacturing risks storage risks and covers perils like earthquakes, terrorism, additions, alterations or extensions, temporary removal of stocks etc. Basis the amount of risk covered; an Insured can opt for one of the following asset insurance Policies as provided below:
|Bharat Sookshma Udyam Suraksha Insurance Policy||Risk Coverage up to INR 5 crores|
|Bharat Laghu Udyam Suraksha Insurance Policy||Risk Coverage in the range of INR 5 crores – 50 crores.|
|Standard Fire and Special Perils Insurance Policy||Risk Coverage greater than INR 50 crores.|