The Indian entrepreneurship spirit is often celebrated at the
global level as it houses a large number of small and medium enterprises
(SMEs), projected at 35-million enterprises, making up 80% of the
overall count of industrial enterprises.
With the emergence of global economic meltdown, insurance covers for
small and medium enterprises (SMEs) have hogged limelight. It assumes
significance since in the present crisis SMEs are usually more
susceptible to financial loss as compared to the large MNCs.
In today's time, insurance is a complete necessity. With rising
inflation level, the risk of wiping off complete savings or getting into
debt has risen manifold. It is believed that 'insurance covers' for
SMEs came to limelight as economic slowdown hit their margins and led to
closure of many units. Client defaults along with the absence of credit
have also taken a toll on their health. It is projected that 70% of the
corporate insurance policies are sold to the SMEs and the premiums from
this sector just accounts for about 35-40% of the revenues.
Moreover, the general (non-life) insurance premiums—like fire,
property, cash —are expected to witness 20% growth and reach Rs 1
trillion by 2015. As the small businesses constitute as an important
part of the India Inc, SME sector is considered as the priority area for
insurers.
Why insurance is important for businesses
Insurance is considered as a useful tool for addressing risks that
arise from damage to business property, liability along with the decline
of health and loss of employees' lives. An insurance policy is a
contract in which one party decides to compensate another party for any
losses or even damages caused by risks mentioned in the contract in
exchange for payment of a huge sum or periodic amounts of money to the
first party.
Although, insurance cannot ensure protection to properties or lives
physically, but it has potential to protect the business insured against
any adverse financial consequences of losing properties and lives. For
instance, a factory that is insured although cannot prevent a fire from
breaking out at the premise, but the insurance money collected can be
utilised for rebuilding the factory if it is accidentally gets burned
down.
An insurance policy also allows efficient use of financial resources.
Without any insurance policy, the potential losses due to capital
destruction should be fulfilled by a business' own internal funds.
Terms related to insurance that SMEs must know
Undertaking insurance coverage means that a 'promise' is made to offer
protection against any financial difficulties such as illness, accident,
natural disaster or whatever unforeseen event that is expected to cause
financial losses.
As an SME business operator, one needs to stay familiar with few
insurance terms before signing up with any insurance firms. Some of
those terms are -
Insurance policy- a documentation which plays the role of a contract between a corporation and an insurance company.
Policyholder - the corporation that possess insurance policy.
Insurer - the insurance company to an insurance arrangement and also takes up indemnify for losses.
Premium - a specified sum of money which is paid by
policyholder to the insurer since the price of insurance protection
against the risks for the time period as mentioned in the insurance
policy.
Types of insurance coverage for SMEs
It is a difficult task to take decision on the insurance package most
suitable to any small business. The most important thing that strikes to
any business owner is protection of physical assets. The small business
owners have wide range of choices. This selection is made depending on
the nature of the business -
All Risks Insurance – It usually covers loss of or any damage to the property insured caused due to any accident.
Burglary Insurance – It covers loss of or damage to property insured due to theft.
Business Interruption Insurance – It covers loss of
profit due to the physical loss or damage to the property insured, thus
impacting a firm from carrying out planned level of business.
Electronic Shield Insurance – It indemnifies the
insured for any unforeseen or sudden physical loss of or damage to
electronic equipment like computers, thus needing repair or replacement.
Employers’ Liability Insurance - It insures employer
against liability at law for employee claims resulting due to bodily
injury or disease sustained in the course of employment.
Equipment Insurance - It covers loss of or damage to
equipment, accessories and spare parts caused by accidental collision or
overturning, fire, external explosion.
Fidelity Guarantee Insurance – It covers all direct
pecuniary loss faced by the insured due to acts of dishonesty and fraud
committed by any particular employee.
Fire Insurance – It usually covers loss or damage to property caused by fire or lightning and other dangers like explosions, storms, riots.
Marine Cargo Policy - Marine cargo policy refers to
insurance for merchandise that is usually transported by sea, air, rail
and road. Since majority of the small scale units are making their
presence felt in the export sector, the issue of insuring goods in
transit assumes importance to these business operations.
It is believed that the loss or damage to large goods shipments can
lead to humongous financial difficulties for the small businesses. If
SMEs are able to understand the different aspects of the available
coverages, it is beneficial for them to better plan their insurance
requirements.
Often, open cover is also considered as an option as it offers
protection for moving cargo within the specified geographical areas.
Relevance of health insurance plans for SMEs
Health insurance schemes for small ventures are of great importance for
creating a healthy workforce and also safeguarding long term medical
expenditures. With the aim to maintain the long-term medical expenses
under check, health insurance plans under small business insurance
policies come with various benefits such as -
· Brings improvement in the workers productivity.
· Administration of healthcare expenses.
· Bringing down illnesses and injuries level. It leads to decline in absenteeism by the workers.
Players offering insurance policies to small businesses in India
Insurance policies for small business in India are not as popular as
compared to the US. There are a few players in this segment -
· US Small Business Administration (SBA)
The US Small Business Administration (SBA) offers customers small
business administration categories primarily for individuals who are the
prospective businessmen. It offers loans for small business by playing
the role of an insurer for small businesses borrowing from the
conventional granter.
· Wells Fargo
The US-based company has sub-division in India and is considered as a
key small business lender. The financial company offers banking,
assurance and investment acknowledgement facilities to the small
ventures.
·Tata AIG General Insurance Company
Among the Indian firms, Tata AIG General Insurance Company Limited
offers small business disclosures and also alternate insurance such as
Multiline Package Policy. It is a pre-endorsed packaged scheme which
incorporates assets, offense, casualty, employee income, unanticipated
events and medical, marine and monetary products.
· SBI General Insurance
SBI General Insurance Company Limited is a joint venture (JV) between
SBI and Insurance Australia Group (IAG). By the end of January 2012, SBI
General Insurance has sold more than 40,000 policies to SME customers
across 100 cities.
· Bajaj Allianz General Insurance
It has unveiled a comprehensive insurance for SMEs known as 'Commercial
Package Policy'. It offers series of covers such as fire and allied
perils, burglary and robbery, money in transit, damage to plate glass,
machinery breakdown, neon sign, electronic equipments, fidelity
guarantee, public liability, portable equipment, baggage and business
interruption cover. Moreover, the plan covers employees under group
personal accident and workmen’s compensation cover.
Ensuring business is sufficiently insured
After getting basic insurance coverage in place, it is important to
carry out a check on what is covered for and what is not. After a
particular time, there is a need to review business insurance policies
to see if there are any gaps or overlaps in coverage areas. If any
overlap is witnessed, policy packages can undergo some changes since it
is where the yearly premium is derived. Revisions are highly necessary
after the flourishing of business.
On the types of insurance, consulting insurance agent or broker is a
good option as they offer complete explanations of premium terms and
coverage in writing. Before buying any insurance, it is important to
ensure that selection is done after analysing the different types of
insurance.
Conclusion
In India, insurance is not desired much by the smaller companies. Since
SMEs don't have time or manpower to cope with high premium costs and
paperwork, the management should stress on critical growth areas in
place of just maintaining close track of when the policy is due to be
renewed. Having realised this, insurers have modified their offerings to
suit SMEs. Companies are hoping to offer 'bundled policies', wherein
several different kinds of insurance apart from the usual covers such as
fire, marine and burglary come in one single package.
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