Small and Medium Enterprises (SMEs) play a vital role in the growth of the Indian economy, by contributing 45% of the industrial output, 40% of exports, 42 million in employment and creating one million jobs every year. Many SMEs tend to be entrepreneurial ventures where the promoter has either invested his/her savings or borrowed money to start a new venture.
Now, risk is inherent in our lives, but SMEs are especially vulnerable to risks that threaten the dream venture that they have worked so hard to build. Naturally, with the stakes being so high, insurance is a prudent way to limit liabilities in the event of damage to assets, property and business. For SMEs, it could be the key to survival.
However, SME Insurance in India is a highly underpenetrated market especially in the non-mandatory segments. Even today, among large sections of the population, the perception is that insurance means either life insurance or health insurance. The fact is that insurance covers anything and everything under the sun, and is even customised to fit the specific requirements of offices, industries, shops, small businesses, agriculture etc.
According to a FICCI-KPMG report, only 10% of employees of SMEs have health cover, and only 0.1% of other core property risks like fire, marine etc. are covered. A lack of awareness, coupled with thin margins, makes insurance a low priority and so it is often neglected by SMEs. Most of them, especially in the micro and small enterprise segments, lag behind corporates on usage of safety practices and equipment. They run huge risks of fire and workplace-related accidents, besides floods during the rainy season. These risks have the potential to cripple their business.
Now, with banks putting a collateral condition to have adequate protection for getting funds, more SMEs are coming forward to take an insurance policy. While awareness levels are increasing, it does not always translate to penetration due to a vicious cycle of mistrust. The fund-strapped SME segment often ends up with partial cover just to meet the requirements of lenders. This eventually leads to a poor claims experience and a lack of perceived value (no money back on claim) which is the primary reason for lower penetration.
SME insurance cover is now seeing a rise in India, with respect to the products offered and the companies that offer these products. An SME Package cover gives the flexibility to combine covers of one's choice in a single policy. The standard package policies include cover from fire and natural perils and burglary coverage. However, the sector has still not adequately met the need for more tailored and customized products for the SME segment.
Going forward, it is critical for the industry to understand the needs of its SME customers and provide options that will ensure that the needs of the segment (which contributes heavily to India’s growth) and the people working in it are met, giving them the confidence to grow further.