How insurance companies aim to unlock untouched, hesitant MSME sector

Starting a business comes with its own set of risks—known and unknown to the entrepreneurs. One of the ways business owners can shield themselves from these untoward risks is by availing insurance.

However, for Indian micro, small and medium enterprises (MSMEs), buying insurance is often perceived as an unwanted expense, a burden they avoid bearing. And the number speaks for themselves. Nearly 85% of MSMEs are uninsured, although they are particularly vulnerable to business risks.

According to Ankit Agrawal, CEO and Co-founder of InsuranceDekho, the potential market size for SME insurance in India is significant. Recently, InsuranceDekho acquired Verak—a Mumbai-based SME insurance provider.

“It’s correct that insurance is often perceived as a "push product" in India, and many SMEs view it as an expense rather than a necessity. However, there are several initiatives that can be undertaken to change this mindset,” he adds.

Indian MSMEs are reluctant to adopt insurance coverage voluntarily, primarily due to a lack of awareness about the benefits, says Saket Dalmia, President, PHD Chamber of Commerce and Industry.

While enterprises are vulnerable to property loss, physical damage, theft, bad debts, and non-realisation of bills and receivables, among other risks, the perception that the insurance claim process is tedious often outweighs the relief insurance coverage can bring to businesses.

Insurance companies have recognised the immense potential in this untapped market and are now taking steps to address it. At present, only 15% of the 6.33 crore Indian MSMEs have business insurance.

In fact, those who have availed of it, have only purchased policies for compliance purposes, and do not focus on advanced insurance policies, highlights Sajja Praveen Chowdary, Business Head for Corporate-SME Insurance at PolicyBazaar.

A report by the International Finance Corporation (IFC) and the Insurance Regulatory and Development Authority of India (IRDAI) highlights that the total addressable market for SME insurance in India is estimated to be in the range of Rs 1.5 trillion to Rs 1.8 trillion (about $21 billion to $25 billion).

The business insurance landscape in India is poised for significant growth as MSMEs become more aware of the risks and how insurance can benefit them.

By leveraging digitisation and technology, InsuranceDekho aims to simplify the insurance buying process with customised solutions for SMEs.

They need convenience and products tailored to their needs, and the company will make the process easier by allowing them to compare policies, get quotes, and purchase insurance online, Agrawal says.

“Technology in the insurance sector is a major driver to get the conversation started around the uptake of products. With tech-enabled buying and policy management processes and dedicated assistance at the time of claims, insurance products will become increasingly accessible to the smallest of businesses,” explains Sajja.

Insurance customised for manufacturing, hospitality, retail, healthcare, agriculture, and other sectors, with relevant coverage options, will add more value.

Agrawal and Sajja believe that targeted marketing campaigns and strategic partnerships with association bodies, MSME chambers, and other business networks will play a key role in increasing insurance awareness.

These include financial literacy programmes, incentives for SMEs, and enhanced agent training to help them recognise the importance of risk management and long-term financial planning. “These initiatives should focus on collaboration between stakeholders,” says Manick Wadhwa, Director of Strategy at SKI Capital.

In 2021, India’s insurance industry saw a modest growth of 5%—even less than the GDP growth and much below the MSME sector’s growth rate.

In the last five years, PolicyBazaar has catered to roughly 5,000 SMEs per year on average. While not a significant number, Chowdhury says a lot of change is happening, and with end-to-end tech solutions, the industry will see positive results in the next three to four years.

Further, it is expected that artificial intelligence and blockchain will bring down the insurance premium cost, which MSMEs are hesitant to pay, Dalmia points out, adding that affordable premiums would attract SMEs, and the future looks bright.

Meanwhile, a lot of support is needed from the regulatory side for the overall sector-wise growth, says Madan Padaki, Co-founder of Global Alliance for Mass Entrepreneurship and President of TiE Bangalore.

Padaki adds that SME-focused insurance products should highlight the value proposition. Besides this, the government can create subsidy schemes for inculcating the habit of insurance.

Agrawal, too, emphasises the government’s significant role in creating awareness about insurance among Indian SMEs by launching campaigns, providing tax incentives, and offering other benefits to SMEs who purchase insurance.

In April 2021, IRDAI introduced two standard insurance products suitable for the MSME sector—Bharat Sookshma Udyam Suraksha and Bharat Laghu Udyam Suraksha. These policies cover fire and other perils, including natural catastrophes, riots, and strikes.

According to experts, the government can also mandate certain types of insurance coverage for SMEs, such as workers' compensation insurance, to ensure they understand its importance as a protective measure.

Despite the modest growth of the insurance sector, with tailor-made solutions and technology, insurance companies are poised to disrupt the Rs 1.8 trillion expected insurance market size in the coming years.