The COVID-19 pandemic has had an adverse impact on the entire MSME sector in the country. The lockdowns implemented due to the COVID-19 pandemic affected MSME owners, employers, workers and institutions as they brought their operations to a grinding halt.
Many businesses have been facing challenges related to financial liquidity, debt repayments, meeting fixed expenses like rent, wages/salaries and statutory dues, etc.
MSMEs are employment generators, innovators, critical factors in the supply chains of larger enterprises, and important contributors to gross domestic projects. They have been able to provide employment to around 120 million people, contribute to about 38 percent to India’s GDP and account for 40 percent and 45 percent towards export and manufacturing output, respectively. While MSMEs are an important aspect of the economic development of the nation, they are highly constrained by lack of availability of adequate financing options. A lack of awareness, coupled with thin margins, makes insurance a low priority and so it is often neglected by MSMEs. As of now, only 5 per cent of MSMEs are covered by insurance. India has 6.33 crore MSMEs, majority of which are micro-enterprises according to IRDAI.
Traditionally, MSMEs owners do not have sufficient awareness of business risk management. It makes them vulnerable to several factors such as theft or acts of God, bad health, loss of income due to reasons beyond their control etc. Entrepreneurs need to understand the risks that accompany the responsibility of playing multiple roles.
As a business owner, they must understand that insurance can make their business resilient to shocks, making it more financially sound. As an Employer, the MSME needs to secure employee welfare and reduce attrition. Another responsibility every business owner has is providing financial security to their family in case of any eventuality.
In the uncertain times, we are living in, insurance gives peace of mind to the Business Owner as it gives them hope that the business will stay afloat even in times of adversity.
Insurance companies have the experience and expertise to quantify the probable risk and offer insurance products that help businesses protect against these. Insurance products can be customized to suit the specific industry and business size. Thus, including insurance as a part of long-term business investment is critical for MSMEs. Business owners usually borrow huge sums from financial markets and hence life insurance is a necessity as it safeguards their business in case of uncertainties.
To address this gap, IRDAI is planning to come out with standardised insurance schemes for dwelling units and Covid-hit MSME segment. Additionally, there are several cost-effective and overarching insurance solutions available for them to stay strong with a firm growth cycle. Business owners need to understand their financial gaps to secure their key assets, and Aviva India’s SME Assist tool performs a complete need assessment of the modern business owner through a set of 15 questions and gives them an instant customized Financial Needs Report that is emailed directly to them.
The specially curated tool helps them access tailor-made solutions and propositions to meet their unique and diverse needs regarding their vulnerability to different risk aspects.
To sum it up, employee benefits, assets & liability, and family protection are key areas where insurance is essential for MSMEs. Most of such businesses do not get quality insurance advice because of their limited scale of business and they find it hard to learn from subject matter experts to help cover their risks appropriately.
Insurance providers must help them understand the significance of insurance in order to safeguard and strengthen their enterprises in a planned and structured manner, to support their families, employees, and business even in difficult circumstances. At the same time, insurers need to simplify the entire customer journey, i.e., evaluating, buying, and claiming the insurance benefits to secure their business and future. Such initiatives will help MSMEs secure their future and help them play an even bigger role in India’s economic growth in the days to come.
The author, Vinit Kapahi, is Head, Marketing at Aviva India. The views expressed are personal