Given their relatively small financial and business size, SMEs are especially vulnerable to risks threatening the venture. Surprisingly, the employees of SMEs do not have health covers or other core property risks like business interruption, fire, marine etc. Lack of awareness, coupled with thin margins, makes insurance a low priority, and business owners often neglect insurances the law does not mandate. While insurance can be an expensive investment in the tight budget an SME runs, it could save huge amounts if a disaster ever strikes.
Why is insurance essential for SMEs?
Many often view insurance as a complicated and confusing subject matter. Purchasing insurance is nothing but purchasing protection. Though the extent of shock absorption in the time of loss varies from policy to policy, the financial cushion insurance provides promises peace of mind.
- Protection during cash flow crisis
Due to their limited cash flow source, SMEs are prone to unforeseen financial risks that could harm their operations and ability to pay their employees and grow in the market.
- Risks due to third parties
Financial losses due to unexpected events such as explosions, fire, natural calamities, riots, theft, etc., could even potentially lead to the business’s downfall.
- Protection from legal liabilities
Fending legal proceedings is pricy, especially for a small business that could already be burning through its proprietor’s life savings. It is vital that they are able to pay for any damage the employees or the company has caused to their customers.
With technical advancement and awareness improving among the business owners, SME insurance cover is now seeing a rise in India. An SME package cover provides the flexibility to combine covers of one’s choice in a single policy. A standard insurance package would include protection from fire, natural perils, and burglary, and an SME could use a more comprehensive insurance policy for better security.
Here are some of the insurance covers that are a must-have for all small businesses today:
- Business Interruption Insurance: If the business ends up getting shut down for a short span of time due to unforeseen external forces, this insurance will make sure to pay the lost income, and the business stays afloat during the crisis.
- Worker’s Compensation Insurance: If a work-related accident renders an employee unfit to work, insurance will help protect the workers this incident affects.
- Accounts Receivable Insurance: In the event of delayed or lost payments from the customer’s end, this insurance will cover the losses for a set period of time.
- Equipment Breakdown Insurance: Computers, electrical/electronic, and mechanical equipment are bound to wear & tear, causing repairs. This insurance can help your business from the cost these damages bring about.
- Office and Shop Insurance: This insurance offers comprehensive coverage for threats that affect the office operations’ impact and provides financial aid against any damages to the building structure and the contents within.
- Liability Insurance: This insurance protects the business in the event of property or bodily damage to the workers or customers who visit the company. While businesses with rare personal visits may choose to omit this insurance since the chances of an injury on their property are remote, businesses with regular foot traffic, such as retail stores or warehouses, should consider this an essential part of their insurance policy.
- Stock & Goods Insurance: If the business has a factory that trades or stores raw materials to make their products or if the company is unable to function without the materials in its inventory, this insurance is a must-have. The insurance will provide a replacement value against the damaged goods at the time of need.
Since businesses are different and may utilize diverse resources, it is imperative that the business owner understands the potential risks to know what insurances best suit their needs. While all of the above insurances may not be relevant for all SMEs, it is crucial to ensure that business owners do not neglect insurance since it is not mandatory by law. Insure right to avoid loss.
(The writer is Lead – Product, Riskcovery)