Most people are aware of what insurance entails and why it’s important. It’s a way of securing yourself against financial losses against a fee. The insurer indemnifies the insured against a variety of contingencies that can result in losses, from property damage to death. The customer pays a premium for a certain period of time, against which, the insured agrees to compensate them in case of losses. This form of risk management is widely used for both individual and commercial purposes.
While insurance has seen widespread uptake for decades, business insurance is still a lesser-known option, particularly for small businesses. For micro, small, and medium enterprises (MSMEs), business insurance can be an excellent way to safeguard themselves against major financial setbacks. This is especially important for small businesses, since they operate on tight budgets and can face serious consequences if they suffer damages. Here’s all you need to know about business insurance as an MSME entrepreneur.
Business insurance is a form of risk management that protects companies from financial losses caused by unexpected events. It comes in different forms, covering risks ranging from property damage and liability claims to operational interruptions resulting in losses. Businesses can opt for property insurance, which protects their physical assets such as buildings and equipment from things like fire or theft. Liability insurance handles legal claims related to injuries or damage caused by the business. You can also opt for employee benefit policies to ensure that your workers are covered.
The importance of business insurance can’t be overstated. By reducing financial risks, it helps companies stay stable and secure. This is particularly significant for MSMES, because it gives small business owners peace of mind, letting them focus on growing their business without worrying about potential setbacks.
There are a variety of different types of business insurance policies to cover a wide range of needs. Here are the main categories:
These policies typically include business health insurance, retirement plans, paid time off, and other incentives to meet the needs of employees. By investing in comprehensive employee benefits, employers can attract and retain talent while enhancing employee satisfaction and productivity.
Protects business assets like buildings, equipment, and inventory from damage or loss caused by events such as fire, theft, or natural disasters.
Provides coverage for legal claims resulting from defective products sold or supplied by the business.
Offers benefits to workers for work-related injuries or illnesses. This is a critical and often mandatory coverage to have for all businesses that have employees.
Covers vehicles used for business purposes against accidents, theft, and damage.
Offers financial assistance for lost income and ongoing expenses if business operations are disrupted due to events covered by the insurance policy.
Protects both the borrower and the lender if the borrower is unable to repay the loan. It covers the outstanding loan balance or a portion of it in case the business owner becomes unable to make loan payments due to unforeseen circumstances such as disability, critical illness, or death.
For MSMEs, the importance of business insurance is paramount. The benefits of business insurance include safeguarding against potential risks and ensuring long-term viability. Here are the top reasons why MSMEs should prioritize investing in small business insurance coverage:
MSMEs often operate within tight budgets and limited resources. In the face of unforeseen events such as natural disasters or accidents, these businesses can face significant financial losses that could even result in closure. Small business insurance provides a safety net by covering the costs associated with property damage, business interruption, etc. By transferring the financial risk to the insurance provider through products like small business health insurance, MSMEs can protect their assets and maintain financial stability, enabling them to focus on growth and innovation with confidence.
Being able to access financing is essential for MSMEs looking to expand operations, invest in new equipment, or launch innovative projects. Lenders often require businesses to have insurance coverage as a condition for approving loans. By having adequate business insurance in place, MSMEs demonstrate to lenders that they are proactive about managing risks and protecting their assets, thereby improving their chances of getting a business loan favorable terms. So, insurance not only protects the business but also improves business loan eligibility and facilitates access to crucial financial resources for MSMEs.
Employees build the foundation of an MSME’s success and growth. It is, therefore, crucial to ensure their well-being. Business owners can ensure this through insurance that includes coverage for workers’ compensation, health benefits, and other employee-related risks is essential. In the event of work-related injuries, illnesses, or accidents, insurance provides financial support for medical expenses and lost wages, alleviating the burden on both employees and employers. Moreover, offering comprehensive employee benefits can help MSMEs attract valued employees and foster loyalty among workers, ultimately leading to a more productive and engaged workforce.
Business insurance not only protects MSMEs against potential risks but also enhances their credibility and trustworthiness in the eyes of customers, suppliers, and business partners. Having insurance coverage shows stakeholders that the business is financially stable, responsible, and committed to fulfilling its obligations even in challenging circumstances. This leads to increased confidence in the brand and stronger customer relationships in the long term.
Business insurance is widely available and MSMEs can access it through a variety of channels and providers. With technological advancements, insurance has now become digitally available as well. In fact, through embedded finance, MSMEs can even access insurance while making other purchases through online platforms.
Before purchasing insurance, MSMEs need to carefully consider a number of factors to ensure adequate coverage and protection. Here are the main aspects to look at:
MSMEs need to find out their specific insurance needs based on their industry, operations, and potential risks. For instance, a manufacturing unit would be well-served by property insurance to safeguard physical assets, a service business could choose liability insurance to cover legal claims, and business interruption insurance could mitigate revenue loss during disruptions for trading businesses.
Different industries pose varying levels of risk for MSMEs involved in them. Factors like market volatility and geopolitical disruptions resulting in broken supply chains can increase certain risks. MSMEs have to assess industry-specific risks involved in their business to determine the most suitable commercial insurance coverage.
While cost is an important consideration, MSMEs should prioritize comprehensive coverage over it. Opting for inadequate coverage to save on premiums can leave them vulnerable to substantial financial losses. Investing in robust insurance coverage that adequately addresses potential risks is essential for long-term financial security.
Certain types of MSME insurance may be legally mandated depending on the regulatory environment and industry. For instance, workers’ compensation insurance is typically required to provide benefits to employees injured on the job. MSMEs must understand the regulations and ensure compliance by obtaining the necessary insurance coverage.
As MSMEs grow and scale up their operations, their insurance needs could change drastically. It’s essential to choose insurance policies that offer flexibility and scalability to accommodate business expansion and changing requirements. MSMEs should review their insurance coverage regularly and adjust it as needed.
Deductibles are the amount the policyholder must pay before the insurance coverage kicks in. MSMEs should carefully consider deductible amounts when selecting insurance policies. Higher deductibles mean lower premiums but more costs if there’s a claim.
Business insurance plays a crucial role in helping MSMEs manage financial risks. By carefully considering a variety of factors such as the type of coverage needed, industry-specific risks, legal requirements, and the costs involved, MSMEs can make informed decisions about the adequate amount of coverage they need to protect their assets and ensure long-term financial stability. With the right small business insurance coverage in place, MSMEs can navigate challenges without difficulties and pursue growth opportunities.
Because financing plays such an important role in the success of MSMEs, these small businesses are increasingly opting for credit to fund their growth and expenses. However, in the event of unforeseen circumstances disrupting the repayment of loans, the credit score and financial health of the business could take a hit. Kinara Capital offers collateral-free loans to MSMEs, which are covered by Loan Protection Insurance, if the borrower chooses to opt for it. This secures the repayment in case the borrower fails to make them. If you want to start your business growth journey in a quick, easy and secure manner, download the myKinara App today.
1. Why is insurance important for a business?
Insurance is important for a business because it helps mitigate financial risks by providing coverage for potential losses due to unforeseen events such as property damage, liability claims, or business interruptions.
2. What factors affect the cost of business insurance for MSMEs?
Factors affecting the cost of business insurance for MSMEs include the type of coverage needed, the industry in which the business operates, the business’s size and revenue, its claims history, the level of risk associated with its operations, and the deductible amount chosen.
3. How do MSMEs file a claim on their business insurance policy?
MSMEs typically file a claim on their business insurance policy by contacting their insurance provider and submitting a claim form along with any required documentation, such as photographs, estimates, or police reports, related to the incident. The insurance company then assesses the claim, investigates the circumstances, and determines the coverage and payout amount according to the terms of the policy.
