SME insurance penetration for biz in India is at a low rate

SME insurance penetration for businesses in India is still at a low rate, “but significant progress has been made during the last five year”, says Santosh Sahoo, VP, SME Insurance at Probus in says in an exclusive interaction with Bizz Buzz.

How would you describe the current state of SME insurance penetration in India? What has changed over the past five years?

SME insurance penetration for businesses in India is still at a low rate, but significant progress has been made during the last five years. The COVID-19 pandemic has acted as a wake-up call for small businesses, to think about their risk profiles again. Digital transformation and regulatory push have created an environment for insurance to be more accessible and affordable, and it has also made people more aware. New-age insurtech companies have all simplified the products they offer, onboarding to the platform, and claims servicing. Sectors such as logistics, retail, and manufacturing are now far more willing to insure their assets, employees, and liabilities, but the gap is still large. According to the IRDAI 2020 Report – nearly 85% of the Indian SMEs were uninsured, shows the need for outreach to SMEs with simple products. The next step for growth which will be important will depend on establishing trust and the provision of coverage solution that aligns with the risks pertinent to a certain sector.

Why do you think over 85% of Indian SMEs still operate without insurance coverage? What are the biggest roadblocks?

I think the major roadblock is that there is a misconception that insurance is too costly and they cannot afford it and that’s why the majority of the SMEs still operate without insurance. Many business owners see insurance as just another expense, not as an investment in managing risk. Insurance products are often information heavy, completely jargon laden, and fail to cater for the distinct small business issues. The absence of knowledgeable/technically sound partners and limited access to digital technology in Tier 2 and Tier 3 markets creates limited penetration. Also, there are culture issues as SMEs tend to have informal safety nets and default on personal savings, eventually deciding against structured financial protection. SMEs also get stuck on the claim settlement process as it appears cumbersome, uncertain and difficult to navigate. To address this, insurers need to create easy to understand offerings, communicate in local languages, remove barriers to digital onboarding from client-side and reduce decision fatigue.

Cyber threats have become more prevalent in recent years. Are you seeing an increased demand for cyber insurance from small businesses or startups?

Yes, there is a measurable increase in demand for cyber insurance particularly amongst start-ups and digital-first SMEs, and specifically in the areas of fintech and e-commerce. The increase in remote working, adoption of digital payment systems and online business has increased the potential exposure to cyber risk data breaches, ransomware attacks and phishing scams are no longer limited to the large enterprise space. Smaller firms are starting to understand the financial and reputational risks of incidents of cyber breaches. However, the overall cyber insurance penetration is still low, mainly due to limited awareness and the perceived complexity of cyber insurance policies. Addressing small and mid-sized enterprises with educational information about their potential liability, plus testimonials/case studies and examples, is assisting adoption. Cyber insurance products that are designed specifically for small/medium business and have affordable coverage options are key to wider coverage in the coming years.

How well do Indian SMEs understand the importance of insurance, especially in a post-pandemic and digitally evolving world? Is there still a trust gap?

Although there is now a better understanding of insurance following the pandemic, there remains a gap in trust and understanding relative to insurance for Indian SMEs. More small businesses than before understand that risks around health emergencies, cyberattacks and natural disasters can drastically disrupt operations, however, most have yet to take the next step. Barriers include distrust in the claims settlement process, fear of hidden clauses, and basic misunderstanding of the product. Also, many small businesses contemplate an insurance decision when the crisis has occurred. To close this gap, insurers will need to enhance transparency, communicate in regional languages, and use real examples of the benefit of coverage showed clearly.

What kind of innovations are Probus bringing to the table to simplify the insurance journey for small businesses?

Probus' goal is to make insurance easier and accessible to small businesses. Our concentration is on Tier 2 and Tier 3 cities. We regularly interact with our field force via training for workshops or sessions to improve literacy and awareness of insurance in the field. For customers buying insurance for the first time, we provide considerable support post-policy sale, assisting customers with claims, and building confidence in the industry. We have our online platform to compare and purchase SME products, supported by an AI-driven solution that assists with claims and queries in alignment with audience-specific requirements. At Probus we focus on our SME products such as property, engineering, liability and employee benefits policies. Our mantra going forward for the next 3 years is to cover 10 lakhs plus through complete digital solutions (mobile and web apps) which are fully paperless and making insurance a partnership not a transaction.

What would be your top 2–3 suggestions for a small business looking to start their insurance journey in 2025?

If you're a small business starting your insurance journey in 2025, you'll need to start with identifying your key risks associated with what you do. Focus first on foundational policies such as property insurance (to protect your physical assets) and group health insurance (to demonstrate you value the health of your employees at work and enhance employee retention). These are two key parts of your risk management matrix and need to be established first. Second, keep it simple and straightforward. Choose an insurance partner or platform that helps you really understand the terms of the policies you purchase and that offers a digital onboarding experience to make it easy and have relationships that offer claims support should you need it. Start small if you have to but build a practice of thinking about insurance sooner rather than later. Insurance today has never been easier to obtain, with the technological solutions and pricing available today, it can be an intelligent and seamless part of your initial business continuity plan.

EoM.