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Insurance: Fueling MSME Development

In India, micro, small, and medium-sized enterprises, or MSMEs, are acknowledged as an essential part of every economy, regardless of its stage of development. An estimated 60% of workers in the private sector are employed by MSMEs, which make up over 95% of all businesses worldwide. MSMEs are essential to the expansion of the economy since they are self-sufficient and able to produce significant amounts of revenue, which boost the GDP of the nation. The study concludes that insurance can help MSMEs grow because it gives them enough risk protection, which improves their ability to get financing. 

 In this blog, we are going to explore how insurance companies play a vital role in facilitating the growth of MSMEs by providing them with the necessary risk protection, which in turn enhances their access to financing and fosters their overall development.


 

The causes of economic growth are numerous and diverse. Nonetheless, theory has pinpointed a few crucial elements, among which is finance. Risks that are well-managed are less likely to come true, and if they do, insurance lessens or completely removes the financial damage. MSMEs with insurance may become more resilient to shocks and thus appear more financially sound. It is advised that these SMEs obtain business insurance. Nonetheless, the majority of small and medium-sized businesses fail to survive for more than two years due to a lack of knowledge about business insurance. The shutdown is the result of a lack of funding brought on by a combination of departmental and financial issues. Insurance can thus take this a step further. Regardless of the un-segregated organisational structure of SMEs, employees will be motivated to work if they feel safe. Insurance is the answer to managing SMEs over the long haul.                                                                                                                                                    


Certain MSMEs demand and necessitate insurance products that aren't allowed to be sold under the majority of current insurance laws. For example, it may be required to permit distribution channels to give advice—something that is presently forbidden. It may be necessary to modify the premium payment schedule to reflect the MSMEs' economic cycle, which can be at odds with the present regulations pertaining to preserving the validity of coverage. The kinds of advantages that insurance companies could offer—and things the existing regulations may not cover—range from support, guidance, counsel, machinery movement, and raw resources, replacing items and machinery that are damaged, unemployment benefits, and credit-building initiatives through loans via banking institutions. Regulation could allow for experimenting with products, reduce regulatory costs, and use of digital technology applications, yet require detailed analysis of the targeted market as part of product development.                                                              

 

Insurers have not sufficiently targeted the MSME sector as clients, with rare exceptions. Typically, the only insurance products available are the regular ones; no specially designed policies have been created to meet the unique requirements of MSMEs. To produce items that are suitable, one must possess both inventive thinking and a solid understanding of the value chain of various MSMEs.

Products that successfully cater to the needs of the MSME sector must possess a minimum of these attributes:

  1. i) Product attributes are taken into account:

  • prices that are reasonable for the intended audience; 

  • reliable and easily available means of distribution; 

  • Patterns of premium payments that take the economy into account of the intended clientele; 

  • A timeline for settling disputes that ensures the efficacy of the advantage, preventing the requirement for transient, expensive credits; 

  • Renewals that are straightforward and indicative of modification of the risk profile; and

  • Cultural and religious inclinations.

ii) Affordable rates should be offered for traditional MSME protection products, including business interruption, partner insurance, and key man insurance, with riders that include re-education fees, company transition charges, and entrepreneurial guidance.

iii) It is advisable to support the creation of insurance policies that cater to the unique requirements of MSMEs following a catastrophic incident. Stimulated should be certain income-maintaining items like business interruption, re-educational benefits, and loan availability in the event of calamities. If MSMEs are required to have coverage, then such products need to be covered. 

 


The establishment of the following three funds in cases where funding and technical support are required to support the development of MSME risk management systems and insurance:

(i) Establishing a dedicated fund to offer financial assistance with uninsurable risks will increase the worth of insurance to help companies recover from uninsured happenings. 

(ii) The creation of a fund to uphold the reputation of insurance without punishing newly purchased policies and compiling data to enable focused educational programmes or create better products by eliminating specific deceptive omissions. 

(iii) Creation of a fund for experience pricing that, acting as a reinsurer, will compensate for price deviations that are fair, enabling For MSMEs, insurers should set product prices without adding surcharges for incomplete or faulty pricing information.

 In conclusion, the role of insurance in fostering the growth and sustainability of MSMEs cannot be overstated. By providing vital risk protection, insurance enables MSMEs to navigate uncertainties, safeguard their assets, and enhance their resilience against unforeseen challenges.

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