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MSMEs are poised to bolster growth for the Indian economy, with employment generation, GDP growth and exports. For a sector that is contributing so heavily to economic growth, it has been noted repeatedly that it suffers from alarmingly low insurance penetration. It is of utmost importance that the people who make this sector, the workforce, are covered on health and wellbeing grounds. KPMG in association with FICCI in India conducted a survey involving 219 MSMEs from 15 different sectors in manufacturing and services. The results brought forward the reality of workforce welfare in terms of health coverage. The study revealed that compared to an 85% cover in large corporate, insurance penetration is at a low 31% in the MSME sector. If we take a closer look into the number of businesses that actually provide health benefits to their employees, it is very low.

Regulatory moves towards better health coverage


The MSME sector employs an estimated 11 crore people in India and according to IRDAI, only 5% of the 6.3 crore MSME businesses offer insurance to employees or are insured. Recent moves by the IRDAI after the pandemic has been focussed on offering affordable and accessible health coverage to these businesses. New policy products such as ‘Corona Kawach’, ‘Corona Rakshak’ and ‘Arogya Sanjeevani’ have been launched by the regulator in light of this move.

The regulator (IRDAI) has also revised the guidelines for trade credit insurance, which came into effect from November 1, 2021. This is to enable general insurance companies to offer insurance with customised covers, to improve business for MSMEs, considering their constantly changing insurance risk needs. It covered commercial risks such as insolvency or protracted defaults of the buyer, bank responsible for payment in case of Letter of Credit transactions, and stock holding agent in case of consignment transactions. IRDAI is also taking initiatives to facilitate the settlement of claims with quicker approvals; covering tele-medicine services under health insurance, doing away with submission of hard copies for settlement of claims, directing hospitals to provide cashless treatment as per contract, among others in order to facilitate benefits to the insured.

The starting point


In our country, approximately 90% of MSMEs do not offer any financial aid for medical purposes to the families of employees and most micro and medium enterprises offer no financial support to their employees and their families. As seen in practice, MSMEs prefer a basic cover of personal accident and critical illness, with a focus on reduction in premiums and coverage of employees. It is notable that MSMEs prefer to purchase insurance through bank assurance and brokers, with group health insurance penetration through online channels at a minimal level of about 6%.

The key reason for low insurance penetration among MSMEs is a lack of financial literacy and the fact that most of them operate in the unorganized sector.

Businesses that borrow from banks and NBFCs tend to offer these benefits because they mandate it as a prerequisite for loans, however, many micro and medium sized operations still rely on the informal sector for lending. There is no need to include employee benefits in case of such loans. In order to bring transparency in lending, work needs to be done in creating better awareness and setting industry guidelines for players to operate and end unfair practices. Digital Lenders Association of India is an example of such groups who has recently set a Code of Conduct for member lending fintech companies to better promote ethical practices in recovery of loans.

Road to insurtech

Budget 2022 has indicated a number of recovery methods for the MSME sector, to recuperate from the impact of Covid19 pandemic and get back on track sooner. The ECLGS scheme extension of Rs.50000 crore till March 2023 and revamping the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme will be revamped with required infusion of funds, facilitating an additional credit of Rs 2 lakh crore for MSMEs and expand employment opportunities. The healthcare budget however disappointed with marginal increase in allocations, with the exception of the Ayushman Bharat Health Infrastructure mission which received 4176 crores as last year’s 585 crores.

In order to achieve universal health coverage, aiding MSMEs to accept and allocate funds for insurance as an employee benefit is a critical step that needs to be taken forth with partnerships and policy amendments. The current need gap disallows MSMEs to function effectively, with a healthy workforce, protected from disasters like Covid and other endemic diseases. Without insurance coverage, small businesses are vulnerable to disasters in public health, climate crisis and physical damage to the operation. Right now, protecting employees could very well work in favour of small and medium businesses in retaining talent and muscle, as people are looking for better workplace benefits after the havoc wreaked by Covid19.

Insurtech has helped MSMEs take advantage of group health support by bringing their products digitally into smaller towns and cities. A caring employer should remember to extend healthcare to employee’s families, and insurtech has allowed for this possibility by building customisable products at varied price points. Innovation and cooperation among insurtechs, insurance providers, regulators and the administration could provide a feasible map to achieve universal health coverage (UHC). Employee healthcare benefits need to become an integral part of the business and not an afterthought, if we want to secure our economic future.

Yogesh Agarwal Founder, Onsurity


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