MSME Insurance: Protecting Micro, Small and Medium Enterprises in India

Running a small business can often feel like juggling a hundred different tasks every day. Whether it's placing orders, paying staff, or engaging with customers, you have a lot on your plate. What happens if, in the middle of all that, your business is impacted by an unanticipated event? It could be something small, like a broken machine, or something big, like a natural disaster. How will you be able to get over this? 

Take Giri, for example. He has a small printing shop in a busy neighbourhood. One rainy night, a power surge damaged his printing machines, and suddenly, his entire business came to a halt. He was anxious about losing his clients and lacked the funds for urgent repairs. It's fortunate that Giri was clever enough to buy insurance for the items he owned. Within a few days, the insurance company covered the cost of the repairs, and he was able to continue with his business as usual.

Herein lies the role of insurance, especially for MSMEs or Micro, Small, And Medium-Sized Enterprises. It serves as a kind of armour that keeps your company running smoothly even when things don't go according to plan. But have you ever wondered how insurance functions for businesses?

In this article, we'll look at the several kinds of coverage that are available, how the MSME insurance scheme can protect your firm, and why small business owners should consider obtaining one.

Are you ready to learn more? Let’s get straight into the details! 
 

What Is MSME Insurance?

MSME insurance scheme is a special kind of insurance designed to meet the specific demands of Micro, Small, and Medium-Sized Enterprises. This scheme is intended to cover specific vulnerabilities and challenges that small enterprises often face.

It typically covers any disruptions in business, liability claims, and property damage, helping make sure a company can withstand unanticipated difficulties and continue to operate efficiently. This safety net is essential since smaller businesses could suffer significant financial losses from even a minor occurrence.

In addition, a lot of MSME insurance plans include life and health insurance for their employees, which helps businesses provide a safer, healthier work environment.

Another aspect to consider here is cyber insurance!

Cyber insurance is a crucial element in the current digital era, providing defence against data breaches and cyberattacks that might jeopardise confidential information or even cause a company's activities to cease.

When it comes to a competitive market where resilience is crucial, MSME insurance offers a broad spectrum of protection that helps firms not only become financially stable but also concentrate on growth, innovation, and sustainability.

The Indian government has launched a number of measures in an effort to better assist MSMEs. For instance, the Janshree Bima Yojana offers insurance and scholarships to support Khadi artists. In the same way, workers who pass away or become disabled are compensated by the Coir Workers Insurance Program.

The Exporter Credit Insurance Program is intended to provide small exporters with financial support, while the SRTOS scheme helps with new car purchases by covering not only the cost of the vehicle but also working capital and insurance.

These initiatives highlight the importance of the MSME insurance scheme in keeping companies resilient and advancing the economy.
 

Types Of MSME Insurance Scheme

Let's discuss some of the most important types in more detail -

• Property Insurance
  For the protection of a company's tangible assets, it is essential to buy this kind of insurance. Property Insurance offers protection against unforeseen occurrences like fire, theft, vandalism, and even natural disasters like floods or earthquakes, for the building equipment, or inventory you own. Companies may choose between coverage options that help in their financial reconstruction and recovery following damages, such as replacement prices or actual cash value. This guarantees that the company's assets are safeguarded in the event of a crisis, facilitating a speedier recovery.
   
• Liability Insurance
  Businesses that have liability insurance are protected against the potentially significant expenses of lawsuits and legal claims that might occur due to injury or damage associated with the business. This could include everything from difficulties resulting from defective items to third-party injuries that happen on company premises. Mainly liability insurance is primarily of two types -

1. 1. Third-party injury is covered by General Liability Insurance.
   2. Product Liability Insurance shields companies from lawsuits resulting from faulty goods.

By putting liability insurance in place, businesses can operate with more peace of mind, greatly lessening the cost impact of legal actions.

• Business Interruption Insurance
  When unanticipated events like fires or natural disasters force businesses to temporarily close, Business Interruption Insurance provides a crucial safety net. This insurance compensates businesses for lost income and helps cover ongoing expenses when operations are forced to close due to covered events, such as fires or natural disasters. It ensures that essential costs like bills, payroll, and other financial obligations are met during the period of disruption. MSMEs, which often face limited resources, need this kind of coverage the most.
  
  In order to ensure that the firm can continue to meet its obligations and recover more rapidly even during a disruption, this insurance gives them the breathing room they need to get back on their feet.
   
• Equipment Breakdown Insurance
  It is imperative that MSMEs that depend on machinery or specialised equipment have access to Equipment Breakdown Insurance. When machinery breaks down because of electrical, mechanical, or other predetermined problems, this coverage pays for the cost of repairs or replacements. Having this insurance reduces interruption in sectors like manufacturing, where equipment failure can stop output and result in large losses. It enables companies to immediately handle equipment issues, minimising downtime and the resulting financial losses.
   
• Theft And Burglary Insurance
  For companies that are susceptible to losses from theft, burglary, or robbery, Theft and Burglary Insurance provides an essential additional layer of security. This kind of coverage makes sure that businesses aren't left to bear the entire financial load in the event of stolen inventory, cash, or other important business property. In addition to covering asset loss, these plans often cover property damage brought on by break-ins, assisting companies in repairing physical harm and promptly restarting operations.  For MSMEs, this entails recovering from potentially catastrophic losses more quickly.
   
• Professional Indemnity Insurance
  Professional Indemnity Insurance, often referred to as errors and omissions insurance, is crucial for professionals such as consultants, accountants, and lawyers. When a client alleges that they suffered financial losses as a result of the professional's counsel or services, this coverage kicks in. Basically, it aids in the scenario in which a company is charged with negligence or delivering inadequate workmanship by paying for the expense of the company's legal defence as well as any potential settlement. Professionals can rest easy knowing they are shielded from the financial risks associated with client disputes and potential errors when they have this coverage.
   
• Cyber Liability Insurance
  This insurance has become vital for businesses of all sizes, especially MSMEs, in the modern digital age. In light of the increasing danger of cyberattacks, this insurance offers vital financial security against data breaches, hacking incidents, and other cyber hazards. It pays for the price of recovering lost data, legal fees, informing impacted parties, and even regulatory fines from the government. Businesses that have cyber insurance are better able to handle the intricacies of a cyber disaster, allowing them to recover quickly and reduce long-term damage.
   
• Marine Insurance
  Businesses that depend on the transportation of commodities by air, sea, or land need marine insurance. For businesses engaged in international trade or those who regularly transfer items between different locations, this coverage provides peace of mind by protecting against loss or damage to commodities while they are in transit. With this insurance, businesses can securely handle the unpredictable nature of shipping, knowing they are financially insured from transit-related risks such as accidents, weather damage, or other unanticipated disasters.
   
• Health Insurance For Employees
  Offering health insurance to staff members is an effective approach for MSMEs to draw in and sustain talent. This coverage provides access to necessary medical care, which commonly includes benefits for vision and dental treatment. In addition to the apparent benefits for workers, health insurance ensures workers stay healthier, which lowers absenteeism and promotes general well-being.
   
• Government-Aided Schemes
  The Indian government has implemented multiple insurance programs to offer monetary security to particular segments of the Micro, Small, and Medium-Sized Enterprises (MSME) industry.

3. 1. Janshree Bima Yojana For Khadi Artisans
      For Khadi craftsmen, the Life Insurance Corporation of India (LIC) and the Khadi and Village Industries Commission (KVIC) have introduced a group insurance scheme called Janshree Bima Yojana, which provides vital insurance coverage. Important advantages of this group insurance plan include -
4. 1. 1. Rs. 20,000 for death due to natural causes.
      2. Rs. 50,000 for accidental death.
      3. Rs. 50,000 for permanent loss of two eyes or limbs.
      4. Rs. 25,000 for partial loss of one eye or limb.
      5. The program provides a quarterly stipend of Rs. 300 to two children per household of Khadi artists for students in 9th through 12th grade. This mix of insurance and educational support protects the future and livelihood of artisan families.
   2. Coir Workers' Group Personal Accident Insurance Scheme
      To safeguard coir workers and their nominees in the event of an accident, the Coir Board launched the "Welfare Measures-Coir Workers Group Personal Accident Insurance" program. The Coir Board picks an insurance carrier through a competitive quotation process, paying the entire insurance premium. Under this plan, compensation consists of -
5. 2. 1. Rs. 50,000 for accidental death and permanent total disability.
      2. Rs. 25,000 for permanent partial disability.
      3. Variable compensation for finger cuts, with the amount paid dependent on the proportion of the total capital sum insured, based on the severity of the damage.
   3. Exporter Credit Insurance Under The Indian Leather Development Programme
      The Indian Leather Development Program's Exporter Credit Insurance helps small and medium-sized exporters manage the risks involved in global trade by offering vital financial security. This program consists of a number of related schemes designed to meet the unique requirements of small exporters.
6. 1. 1. Small Exporters Policy (SEP)
         Exporters expecting less than Rs. 5 crore in export revenue in a year are eligible for the Small Exporter Policy (SEP). Exporters who participate in this program receive a standard insurance policy with additional benefits tailored to their level of business. SEP provides a 12-month insurance policy as part of the Indian Leather Development Programme, designed to address the particular risks faced by small exporters and give them the assurance to confidently sustain and grow their business within their existing market.
7. 1. 2. Small And Medium Exporters Policy
         The Small and Medium Exporters Policy targets businesses with an expected turnover of less than Rs. 5 crore within a year. Specifically tailored for small and medium-sized exporters, this policy provides complete insurance coverage for a full year. Exporters who meet the prerequisites can apply through the ECGC branch office in their area.
         
         With a maximum loss limit of Rs. 10 lakh, this policy's 90% coverage offers SMEs protection against the majority of possible losses.

• Refinance For Small Road Transport Operators (SRTOS)
  The program ensures that operators can expand their businesses without having to take on the entire financial burden upfront by covering a wide range of costs associated with the purchase of new vehicles.
  
  Coverage of Key Expenses
  Under this scheme, SRTOS operators receive financial assistance for several key expenses, including:

1. 1. The price of the vehicle's chassis.
   2. Expenses associated with constructing or renovating the car's body.
   3. Initial taxes on the newly purchased vehicle.
   4. Insurance premiums to safeguard the investment.
   5. Working capital to sustain the business while it makes the purchase.
       

Differentiating Between The Insurance Needs Of Microenterprises (MEs) And Small And Medium Enterprises (SMEs)

It's vital to comprehend the distinctions between microenterprises (MEs) and small and medium enterprises (SMEs) in order to effectively meet the insurance needs of businesses. Although the business owners of both types of firms must have personal insurance, their financial operations are very different. Unlike SMEs, which typically preserve stronger differences between personal and business finances, MEs sometimes blur these lines. In addition, compared to the generally larger, more structured SMEs, which often possess bigger assets and more employees, MEs typically have lesser purchasing power and varying socio-economic profiles. Due to these distinctions, MEs and SMEs should be treated as distinct customer categories, each of which needs insurance products that are specifically designed to fit their requirements.

Why Should MSMEs Consider Purchasing Insurance?

Here's why investing in insurance should be a top priority -

• Protect Yourself From Unpredictable Risks
  MSMEs encounter many kinds of risks, including fires, theft, and other unanticipated challenges in addition to natural disasters. Business insurance acts as a buffer, making sure that your firm can bounce back quickly and continue with minimal interruption in the event of a disaster.
   
• Protect Your Money From Unexpected Losses
  Any business needs to be financially stable, and insurance is crucial to making sure that happens. Insurance protects MSMEs against unanticipated financial hardship by paying for replacements, repairs, and other necessary expenditures following a covered incident.
   
• Stay Legally Compliant
  Having specific types of business insurance is not only advised but required by law in many regions. Failure to comply with these legal obligations could result in heavy penalties or other legal repercussions. By securing the right insurance, your MSME stays on the right side of the law, ensuring you're fully compliant with local regulations while avoiding potential penalties.
   
• Make Sure Business Continuity Is Smooth
  One of the most important functions of insurance is to keep your business running efficiently, even in the event of an unforeseen circumstance. Insurance helps pay for replacements when equipment is lost, stolen, or destroyed, reducing downtime.
   
• Safeguard Your Business And Employees
  Offering insurance that addresses health issues or occupational injuries to your MSME's workforce is not just a responsible decision but also a must. Plans for employee protection, such as health insurance or workers' compensation, offer an umbrella of protection for your staff. Also, they safeguard your firm from expensive court proceedings by shielding it from potential legal liabilities in cases of workplace accidents.
   
• Increase Trustworthiness And Credibility
  Having business insurance benefits your MSME's reputation and provides risk protection. The mere fact of insurance serves as a symbol of professionalism and a dedication to risk management to stakeholders, partners, and customers. This increase in credibility fosters trust by ensuring all parties that your company is equipped to address any issues responsibly.
   
• Enhance Loan Eligibility And Financing Opportunities
  If your MSME is seeking a loan, having the right insurance coverage can actually make a big difference. A lot of lenders demand that companies acquire insurance before releasing funds. Insurance is a wise choice for companies trying to grow and expand since it not only increases your chances of getting a loan but might also help you qualify for better loan terms.
   
• Customise Coverage To Meet Your Specific Business Needs
  One of the primary advantages of business insurance is its flexibility. MSMEs have the option to modify their insurance policies to better suit their unique risks and needs. Choose the protection that best fits your business, whether it's liability insurance, property insurance, or more specialised plans for covering unforeseen risks.
   
• Protect Your Company From Cybersecurity Risks
  MSMEs are more vulnerable to cyber threats as a consequence of their increasing dependency on digital operations. Threats like ransomware attacks and data breaches can severely damage a business's operations. Cyber insurance is intended to shield MSMEs from the negative effects of such events on their finances and reputation.
   
• Gain Peace And Concentrate On Development
  Ultimately, the peace of mind that comes with having business insurance is one of its biggest advantages. Knowing that the organisation is protected against a variety of risks allows MSME owners to concentrate on what really matters - expanding their enterprise and managing day-to-day operations! When insurance is in place, owners can take the lead because they are less concerned about unanticipated events.
   

Types Of Risk In MSME Business

There are many risks that Micro, Small, and Medium-Sized Enterprises (MSMEs) must deal with, but they can be broadly divided into two categories -

• External risks
• Internal risks

To gain a better understanding of each of these categories, let's dig deeper into them -

Managing Internal Risks:

Internal risks are those that businesses and their owners can actively control and manage. Here are some important internal hazards to think about -

• Internal Fraud: This risk results from dishonest behaviour on the part of employees or other stakeholders and can have detrimental effects on the company.
• Compliance Risk: It is imperative that businesses abide by laws, rules, and internal policies. If they don't, the business may face serious difficulties.
• Over-Leverage: It's critical to handle debt levels prudently because excessive borrowing may adversely affect a company's finances.
• Concentration Risk: Relying heavily on a restricted number of consumers or suppliers induces vulnerability. This makes diversification a critical approach for stability.

Handling External Risks:

Let's now focus on risks that are external.

These are difficulties that the company cannot directly control, but they have the potential to have a big influence on operations. The following are some significant external dangers to be mindful of -

• Hazard Risks: Unexpected disruptions like diseases, fires, or natural disasters can wreck business operations. Insurance is an essential instrument for mitigating these risks, acting as a safety net in case the unexpected happens.
• Financial Risks: It might be difficult to handle cash flow, pricing fluctuations, and inflation. In times of difficulty, like a pandemic, insurance solutions like credit-linked insurance may assist companies in overcoming these obstacles and guaranteeing that they can maintain cash flow and repay debts.
• Operational Risks: These are risks related to daily operations that can include changes in market dynamics and threats from competitors. Being aware of these risks is essential to maintaining a competitive advantage.
• Strategic Risks: External threats, such as competitive pressure, market changes, or economic downturns, pose significant risks to businesses. These external risks, along with internal difficulties brought on by inadequate strategy planning and execution, can severely impact a company's growth and stability.
   

Eligibility For Availing Assistance Under The Scheme

Individuals who wish to get help under any given scheme must be aware of the qualifying requirements. The primary criteria for qualifying for a number of popular schemes intended for workers, exporters, artists, and businesses are listed below.

• Janshree Bima Yojana For Khadi Artisans
  The following qualifications apply to this program, which is only intended for Khadi Karigars and involves both spinners and weavers -
• • Age Range: 18 - 59 Years Old.
  • Economic Status: The applicant must be either below or just above the federal poverty threshold.
     
• Welfare Benefits: Group Personal Accident Insurance for Coir Workers
  The scheme, which is run by the Coir Board, provides insurance for Coir Workers. Eligibility details include  - 
• • Minimum Age: Over 18 years of age.
  • Upper Age Limit: There is no maximum age for enrolment in this scheme.
  • Additional Coverage: Should an unfortunate incident result in death or disability, the disabled worker or their nominee may submit a claim. Given the welfare of the women who make up the majority of the proposed group, the accidents considered will encompass death and disability resulting from sterilisation and its complications, as well as those related to pregnancy, childbirth, cesarean hysterectomy, breast removal, and other incidents such as rape or murder, etc.
     
• Small Exporters Policy (SEP)
  The target audience for this program is exporters with lower annual sales. The ones listed below are the main requirements for eligibility -
• • Turnover Limit: Exporters with yearly sales under Rs. 5 crore are considered to be below the turnover limit.
     
• Small And Medium Exporters Policy
  Specifically tailored for companies that export goods and services, this policy covers companies whose investments meet the following requirements -
• • Investment Requirements: Plant and machinery purchases must abide by the MSMED Act's regulations.
     
• Small Road Transport Operators (SRTOS) Refinancing
  This scheme caters to small road transport operators. Options for refinancing are offered, and eligibility is determined primarily by -
• • Type Of Business: Companies that operate in the small road transport sector.
     
• Laghu Udyam / Bharat Sookshma Scheme
  This insurance plan is designed for businesses that have a substantial amount of insurable assets. The eligibility conditions that you should know about are as follows -
• • Value of Insurable Assets: Businesses where the total value of insurable assets at a single site falls between Rs. 5 crore and Rs. 50 crore when the policy is initiated.
     

How To Apply For The MSME Scheme?

Here's how to apply for different schemes -

1. Janshree Bima Yojana For Khadi Artisans
   One can apply for the Janashree Bima Yojana Scheme through the nodal or self-help organization (such as a Khadi institution) to which they belong. Alternatively, you can also submit your application at any LIC office.
    
2. Small Exporters Policy (SEP) & Small And Medium Exporters Policy
   Applications for each of these policies must be sent to the Export Credit Guarantee Corporation of India's corresponding branch offices (ECGC).
    
3. Refinance For Small Road Transport Operators (SRTOS)
   Small road transport firms might contact banks, State Financial Corporations (SFCs), or State Industrial Development Corporations (SIDCs) to apply for refinancing.
    
4. Bharat Sookshma/Laghu Udyam Scheme
   If a Micro, Small, or Medium-Sized Enterprise hasn't already gotten insurance coverage, it can start by expressing interest via the web MSME insurance portal. The MSME can then select the best option from the premium quotes that insurance firms upload. After choosing and acquiring the policy and paying the entire yearly premium, the MSME must submit an application for reimbursement. 
   
   The UDYAM registration certificate, insurance policy, and premium receipt must be included with this application and filed electronically with the appropriate District Industries Centre (DIC). The DIC will then determine and reimburse the eligible amount - 50% of the annual premium, whichever is less.
    

Things To Consider Before MSME Insurance Purchase

A few things must be kept in mind when trying to find insurance coverage for your MSME so as to make sure you get the right plan for your company -

• Recognising The Type Of Insurance You Need
  Assess your company's unique insurance requirements first. Depending on your business, operations, and the risks you take, this can vary significantly. For example, a manufacturing company could prioritise property insurance to protect its tangible assets, whereas a service-based company might be more interested in liability insurance to protect itself from future lawsuits. To safeguard your income in the event of any operational difficulties, traders should think about purchasing business interruption insurance.
   
• Assessing Industry-Specific Risks
  Every industry has a different set of risks that could impact your company, such as supply chain difficulties, market swings, or even geopolitical issues. MSMEs should carefully consider these risks that are unique to their industry in order to identify the commercial insurance plans that will provide the most protection.
   
• Prioritising Coverage Over Cost
  Budget is a major consideration, but MSMEs must prioritise extensive coverage over price. Choosing cheaper rates could be appealing, but your company could suffer significant financial losses if you don't have enough insurance. Purchasing comprehensive insurance is a wiser choice since it fully covers all possible risks and guarantees peace of mind and long-term financial security.
   
• Fulfilling Legal Insurance Requirements
  Based on the regulations and current industry standards, some types of insurance coverage aren’t simply a good idea- in fact they’re legally mandated. For example, workers' compensation insurance is often compulsory to offer protection for employees who are injured on the job. MSMEs need to make sure they have the right coverage and stay up to date on industry-specific regulations in order to maintain legal compliance.
   
• Ensuring Flexibility For Future Growth
  Your MSME's insurance needs are likely to evolve as it grows. Selecting policies that not only satisfy your present needs but also provide scalability is vital for this reason. With adaptable coverage options, your insurance may expand along with your company, keeping your company safe as risks and operations increase. Develop a routine of reviewing and updating insurance policies in order to stay up and running with the evolving needs of your company.
   
• Understanding The Impact Of Deductibles
  The deductible, or the amount the policyholder must pay out-of-pocket before your insurance coverage begins, is a crucial consideration when choosing an insurance policy. Higher deductibles can reduce your premiums, but they also increase the amount of money you must pay out of pocket before the insurer coverage kicks in. MSMEs must thoroughly consider this trade-off to determine a balance that works best for their financial situation.
   

Let’s Sum Up,

Much like in life, preparation is key to overcoming challenges in business. Consider a squirrel getting ready for winter by collecting nuts; small actions today ensure survival eventually. In a similar vein, MSMEs (Micro, Small, and Medium Enterprises) must be safeguarded with insurance to protect their hard-earned growth and drive future expansion. By alleviating the financial burden during challenging times, insurance helps ensure that businesses can continue to operate, recover quickly, and maintain their trajectory toward growth. This protection allows MSMEs to focus on their vision for the future, invest in new opportunities, and foster innovation without the constant worry of potential setbacks threatening their stability.

Just as a squirrel cannot control the weather, businesses cannot forecast accidents or unanticipated events, but they may be better prepared for them.

Insurance acts like a cushion of protection that makes it possible for MSMEs to go on even when things go bad. Securing the future is just as important as protecting against losses. Ultimately, prudent planning produces more stability and success, whether it's for a corporation or a squirrel. That's it in a nutshell: the MSME insurance scheme guarantees much-needed protection from risks and your  peace of mind.
 

FAQs

1. What exactly is MSME insurance?

MSME insurance is a form of business insurance designed to safeguard Micro, Small, and Medium-sized Enterprises (MSMEs) against financial losses arising from various risks. It serves as a safety net, shielding your company against unforeseen financial losses brought on by many risks.

2. What are the benefits of MSME schemes?

Depending on which specific MSME scheme you select, you may be able to get different advantages. To get the most out of them, you must carefully go over each scheme's features and choose the one that best suits your company's requirements.

3. Why is having insurance crucial for your business?

Business insurance is essential for protecting your organisation from financial losses brought on by property damage, personal injury, or even legal action. Without it, even one single event can possibly put your business to a complete stop. But if you have the correct insurance, you may rest easy knowing that your company can recover swiftly from unforeseen setbacks.

4. What factors influence the cost of business insurance for MSMEs?

A number of factors are taken into consideration when estimating MSMEs' business insurance costs. Important factors to consider include the sector you operate in, business size and income, claims history, and the kind of coverage you require. The amount of the deductible and the degree of risk associated with your business can also significantly affect the premium. To make sure you're obtaining the correct coverage at the right price, it's critical to take all of these aspects into account.

5. How can MSMEs file a claim on their business insurance policy?

For MSMEs, the claim filing process is simple. All you have to do is get in touch with your insurance company, fill out a claim form, and send in supporting documentation such as estimates, photos, or police records. Following submission, the insurance provider will assess your claim, look into the circumstances, and, in accordance with the terms of your policy, decide on approving the claim amount. Staying organised with your paperwork helps facilitate a faster and more seamless claims procedure.