Micro, small, and medium enterprises are the backbone of India’s economy with an estimated 633.9 lakh MSMEs in the country. This sector has shown exemplary performance in 2023, employing over 62 million people annually. However, running an SMEs comes with its own set of challenges. These include business interruption, reputation damage, legal claims, financial loss, and cyberattacks.
Therefore, insurance providers offer flexible business insurance policies to support the growth of SMEs and protect them against sudden cash outflow due to unexpected events. SME insurance is not legally required but covering your business with insurance is a great way to ensure business continuity even during adverse times. Read on to find out the benefits of SME insurance and its legal importance.
Which Insurance is Required by Law for SMEs?
Although having your business fully insured is not mandatory by law in India, a few types of insurance are legally required to run a small business. Here’s a look at such SME insurance and their benefits.
Liability Insurance
This is a general insurance product that provides protection against claims due to injury and physical damage to third parties due the operation of your business. Third-party damage could lead to complex litigation, but you will be safeguarded against financial blows with this insurance. There are 3 types of policies to choose from:
Public Liability Insurance: This protects you against legal liabilities that crop up when a third party suffers bodily injury and property damage on the premises of your business. A Public Liability Act policy is mandatory by law for any industry including MSMEs working with hazardous materials. Consider a Public Liability Industrial policy if you run a manufacturing unit and a Public Non-Industrial policy if you are a non-manufacturing MSME.
Product Liability Insurance: This covers the legal liabilities of a third party who sustained injury or damage after using the products of your company.
Clinical Trial: If your SME conducts clinical trials, this insurance protects against health intervention-related damage that can occur during trial sessions.
Personal Accident Insurance
MSMEs must consider group personal accident insurance to protect their employees against accidents that could lead to disability or death. The employees do not have to pay anything to be covered by the policy. It is a great way to demonstrate that you care about your employees and garner their loyalty.
Role of Insurance in SMEs
SMEs have limited capabilities to absorb risks like payment defaults. Therefore, insurance coverage, even if not mandated by law, should be in place. It can protect the business financially against various circumstances, such as:
A supply chain crisis
Economic slowdown
Geopolitical crisis
Cyberattack insurance and credit insurance are also excellent tools to lower the impact of online fraud and debts, respectively, on small businesses. SMEs can also check out commercial insurance policies, such as shopkeeper’s insurance, transit insurance, warehouse insurance, marine insurance, and office package insurance. These offer protection in cases of fire, burglary, and machinery breakdown. Damage to commercial vehicles, packaging materials, raw materials, warehouses, and office premises is also covered.
As many as 10,655 micro, small and medium enterprises closed down in India in FY 2022-23. This is the highest in the last 4 years. One of the main reasons was the lack of funding for different requirements. MSME insurance products can protect against business downturns by covering financial requirements during a crisis. Invest wisely for the best results.
