MSMEs in India and the insurance imperative: Closing the protection gap.

Despite being the backbone of India’s economy, MSMEs remain critically underinsured. With less than 15% having adequate insurance coverage, millions of businesses are left vulnerable to financial shocks. Why, then, do so many small enterprises overlook such a crucial safety net?

Business insurance penetration among micro, small, and medium enterprises (MSMEs) in India remains alarmingly low. Given that there are 63 million MSMEs, which currently contribute approximately 30% to India’s gross domestic product (GDP), only a small fraction have insurance. Insurance coverage is crucial for MSMEs, given their limited capacity to withstand risks such as payment defaults. In the post-pandemic world, challenges such as supply chain disruptions, geopolitical tensions, inflation, and economic slowdowns have further heightened the risks associated with exports, making risk mitigation through insurance more vital than ever.

This raises an important question: Are MSMEs reluctant to embrace insurance, or is the system failing to make insurance accessible and compelling? According to Girija Subramanian, Chairman-cum-Managing Director, The New India Assurance Co. Ltd., the issue is deeply rooted in perception and awareness. Speaking on the sidelines of the Economic Times (ET) MSME Awards 2024 in Delhi, Subramanian addressed this challenge in a fireside chat moderated by Neha Dewan, Assistant News Editor, The Economic Times.

Understanding the reluctance
Subramanian highlighted a stark disparity, citing a recent survey that suggests 75% of MSMEs perceive insurance as an unnecessary expense. “This perception is at the root of their reluctance to adopt financial risk management solutions like insurance,” she elaborated.

A key issue, Subramanian stressed, is the lack of awareness. Many small businesses do not fully comprehend the benefits of insurance or view it with urgency. There is also a common misconception that insurance is expensive. As Subramanian explained, “MSMEs, especially small businesses, often focus on short-term expenses, considering insurance an avoidable cost.” Additionally, the complexity of insurance products and concerns about cumbersome documentation and claim processes further discourage adoption.

Another challenge is accessibility. “Many MSMEs operate in Tier 2 and rural areas where insurers lack a physical presence. Unlike seeing an LIC or general insurance office, which serves as a reminder, the absence of such visibility results in lower penetration. Insurance is not considered a necessary aspect of business security,” she pointed out.

A multi-faceted approach for Indian MSMEs
Given that financial constraints are a constant concern for MSMEs, one would expect insurance to be a priority. However, Subramanian acknowledged that skepticism persists. To address this, she stressed the need for customised solutions and large-scale awareness initiatives: “We need customised insurance products for different segments of the MSME sector. Micro-businesses, for example, need simple, affordable, and need-based products.”

Awareness campaigns and outreach programs are crucial. She adds, “Workshops, digital drives, and outreach programs should be conducted to reach businesses in semi-urban and rural areas.” Collaboration between government and industry is also essential. “Encouraging MSME associations to interact with policymakers and insurers can help push for mandatory insurance adoption. Over time, as MSMEs experience claim settlements, they will realise the true value of insurance.”

Technology also plays a critical role in improving accessibility. “Digital platforms should be leveraged to make purchasing, renewing, and claiming insurance seamless and hassle-free. If MSME owners see quick claim settlements and ease of use, they will be more inclined to opt for coverage.”

Understanding MSME risks and addressing hesitations
Despite 70% of MSMEs facing business-related risks in the past three years, many still view insurance as optional. Subramanian elaborated, “Surveys show that 70% of MSMEs have encountered risks such as theft, cyber-attacks, natural disasters, and supply chain disruptions. Approximately 45% have dealt with property damage or theft, while 20% have been affected by natural disasters. Cybersecurity risks, particularly for digital businesses, are growing at an alarming rate.”

Yet, reluctance persists due to misconceptions and trust issues. “Around 30% assume their business is too small to be insured, which is a misconception. Many also rely on informal financial backups rather than formal risk management solutions. There is a belief that insurers do not settle claims fairly, and some worry that insurance costs will outweigh the benefits,” she added.

The key to addressing these concerns is transparency and education. “Insurers must demonstrate the speed and fairness of claim settlements. Simplified, customisable products tailored to MSME needs can make insurance more accessible. Flexible premium payment options, lower-cost plans for small businesses, and add-on coverage choices can help build trust and encourage adoption.”

Policies that address distinct risk profiles
To cater to the diverse MSME ecosystem, The New India Assurance Co. Ltd. has launched specialised policies. One such policy is the New India Udyam Bima Policybramanian explained, “The MSME sector is broadly divided into manufacturing (30%), retail and trading (35%), and service businesses (35%). Each has distinct risk profiles. The Udyam Bima Policy provides sector-specific coverage, addressing risks such as equipment failure, fire damage, theft, and cyber threats.”

This policy ensures affordability and comprehensive protection. “The policy offers bundled coverage, including property, liability, and business interruption insurance in a single package. It features hassle-free claim settlements and risk-based pricing tailored to different business types. By ensuring affordability without compromising on protection, it aims to increase insurance penetration among MSMEs.”

Another noteworthy offering is the Bharat Laghu Udyam Suraksha Policy, designed for micro and small enterprises. “This policy covers fire, theft, natural calamities, business interruption, and optional add-ons, including personal accident and employee compensation. It has simplified documentation, reduced paperwork, and faster claim approvals.”

One of its standout features is risk assessment and advisory support, helping MSMEs manage risks proactively. “It’s a comprehensive yet affordable product, available digitally for easy access and claims management. The biggest challenge remains awareness—business owners need to understand its benefits.”

Striking a balance: Practical advice for MSMEs
For MSMEs operating on thin margins, balancing insurance coverage with budget constraints can be challenging. Subramanian offers practical advice: “With 75% of MSMEs operating on thin margins, affordability is key. I recommend prioritising essential coverage—property, liability, and business interruption insurance. Business owners should explore group insurance schemes through industry associations, which often offer lower premiums. They should also check for government-backed insurance schemes and incentives.”

The road ahead
As the Chairman-cum-Managing Director of the company, Subramanian emphasised the company’s role in raising awareness and driving insurance adoption among MSMEs. “The government’s 2025-26 Budget underscores the importance of MSMEs. At The New India Assurance Co. Ltd., we are aligning with this vision by launching targeted initiatives. We have declared this year as the ‘MSME Year’ and established a dedicated MSME cell.”

The New India Assurance Co. Ltd. is taking proactive steps to expand its MSME portfolio. “We are collaborating with State governments, District industrial units, Cooperative societies, Rural banks, and CSE centers to increase awareness. We are also running Digital campaigns and Workshops, and will continue to partner with EconomicTimes.com (the Digital arm of The Economic Times), leveraging its Bharat-inclusive reach through a year-long engagement in the form of a Series of “ET Make-in-India SME Regional Summits”, culminating into the “ET MSME Awards”, including mentoring sessions for SMEs. Our goal is to expand our MSME portfolio to 5 million by 2025-26, ensuring greater financial security for small businesses.”

Bridging the insurance gap for MSMEs is not just about selling policies—it’s about fostering resilience, enabling growth, and safeguarding the backbone of the Indian economy. Tailored solutions, Digital accessibility, and Strategic collaborations can collectively champion the cause of MSMEs, ensuring they step into the future with confidence and security.