What MSMEs Should Consider While Buying Insurance for Their Employees

Employee insurance is no longer just a compliance requirement; it is an essential aspect of building a motivated, productive, and secure workforce. For Micro, Small, and Medium Enterprises (MSMEs), offering insurance coverage to employees is both a responsibility and a strategic investment in long-term growth. However, choosing the right insurance plan requires careful thought, especially given the financial constraints and diverse needs of MSMEs.

This article highlights key factors MSMEs must consider when buying insurance for their employees.

1. Understanding Legal Requirements

The first step for MSMEs is to align with government regulations. For instance, the Employees’ State Insurance (ESI) Act mandates certain organizations to provide health insurance coverage. MSMEs must check the applicability of such rules, including state-specific labor welfare regulations. Compliance not only avoids penalties but also enhances the company’s credibility.

2. Balancing Affordability with Coverage

Budget is often the biggest concern for MSMEs. While it may be tempting to opt for low-cost policies, inadequate coverage can lead to dissatisfaction among employees. MSMEs should aim for a balanced policy that covers hospitalization, critical illness, and accidental benefits while remaining within the company’s financial capacity.

3. Evaluating Group Health Insurance Options

Group health insurance policies are cost-effective for MSMEs, as they provide coverage for multiple employees under one plan. Such policies often come with lower premiums, wider coverage, and less stringent medical checks. MSMEs can also negotiate with insurers to customize these plans as per workforce needs.

4. Coverage for Families vs. Individuals

A key decision is whether to cover only employees or extend benefits to their families. Offering family floater plans improves employee morale and loyalty, but it increases costs. MSMEs should assess their financial bandwidth and workforce demographics before finalizing.

5. Flexibility and Add-Ons

Insurance is not one-size-fits-all. MSMEs should explore add-ons such as maternity coverage, mental health consultations, wellness programs, or COVID-19-related treatments. Flexibility in plan design allows businesses to respond to employee needs and position themselves as progressive employers.

6. Claim Settlement Ratio of the Insurer

One of the most critical considerations is the claim settlement ratio (CSR) of the insurance provider. A high CSR indicates that the insurer honors claims efficiently, ensuring employees receive timely benefits. MSMEs should research insurers’ track records before making commitments.

7. Cashless Hospital Network

The availability of a wide cashless hospital network is another crucial factor. Employees should be able to access quality healthcare without financial stress. MSMEs must ensure that the insurer has a strong tie-up with hospitals in regions where their workforce is based.

8. Employee Education and Awareness

Insurance is valuable only if employees understand it. MSMEs must conduct orientation sessions to explain coverage, exclusions, and claim processes. An informed workforce is more likely to appreciate and utilize the benefit effectively.

9. Leveraging Government and Startup Schemes

The Indian government and fintech startups are introducing affordable group insurance schemes tailored for MSMEs. Initiatives under the PM Jan Arogya Yojana, and digital platforms offering SME-centric health and term plans, can significantly reduce costs while expanding coverage. MSMEs should actively explore such options.

10. Long-Term Perspective: Retention & Employer Branding

Offering robust employee insurance is not just about risk management—it is also about attracting and retaining talent. In a competitive market, insurance coverage enhances employer branding, reduces attrition, and boosts employee trust. MSMEs should view it as a long-term investment in human capital.

Forward Note

For MSMEs, purchasing employee insurance is both a strategic necessity and a moral responsibility. By balancing affordability with adequate coverage, ensuring compliance, and focusing on employee well-being, MSMEs can create a healthier, more loyal workforce. In turn, this contributes to business resilience and sustainable growth.