Insurance for SMEs: From Cost Perception to Strategic Investment

In an exclusive interaction with SMEStreet, Mr. Faiz Askari, Founder-Editor of SMEStreet, engaged in an insightful conversation with Mr. Sajja Praveen Chowdary, Head of Policybazaar for Business. The discussion revolved around the evolving role of insurance in India's MSME sector, the challenges of perception, regulatory needs, and how tech-led platforms like Policybazaar are simplifying access to tailor-made insurance products for small businesses.

“Insurance is Still Seen as a Cost, Not an Investment” – Sajja Praveen

Faiz Askari: Insurance adoption in the SME sector continues to remain low. What are the key reasons for this, and how do you see the situation evolving?

Sajja Praveen: You’re right. The biggest hurdle is the perception—most SMEs still see insurance as a cost rather than a long-term investment. Often, these enterprises are proprietorship-driven, and funds flow directly to the proprietor’s household. So, diverting money toward employee insurance or machinery cover feels like an expense with no direct return. This mindset mirrors where retail insurance stood ten years ago—until COVID pushed individuals to prioritize health coverage. A similar catalyst is yet to come for the SME segment.

Insurance as a Tool for Retention and Risk Mitigation

Faiz Askari: Are SMEs starting to see the value of insurance for employee retention and business continuity?

Sajja Praveen: Absolutely. We're seeing a shift where growth-oriented SMEs recognize that offering basic health insurance helps retain key employees. Especially for lower-income staff, health coverage can be life-changing. When a business is scaling, losing a skilled team member to a competitor due to lack of benefits can be costly. Insurance becomes a differentiator in such cases.

Beyond Health: Business and Equipment Insurance

Faiz Askari: What about non-health insurance—like marine, fire, or machinery insurance? Are SMEs exploring those?

Sajja Praveen: Adoption in non-employee areas like marine or property insurance is often driven by regulatory compliance or client mandates. For example, contractors need a workman’s compensation policy to enter a job site. Similarly, exporters may require marine insurance. On the other hand, policies like fire insurance or D&O (Directors and Officers) liability cover are still perceived as optional and see lower uptake—unless mandated by banks or partners.

Cybersecurity and Professional Indemnity

Faiz Askari: For tech-driven SMEs, how critical is professional indemnity or cyber insurance?

Sajja Praveen: It’s vital. Especially for tech service providers handling backend systems of larger clients. A payroll disruption, for instance, could trigger lawsuits or contractual penalties. That’s where Errors and Omissions (E&O) or professional indemnity insurance becomes essential. Clients often require such policies before awarding contracts.

Bridging Gaps in Government-Backed Employee Insurance

Faiz Askari: Some SME owners find schemes like ESIC hard to manage due to poor user experience. Can private players help bridge this?

Sajja Praveen: Yes, and we’re already innovating here. ESIC offers unlimited coverage but often at the cost of convenience. We’ve developed basic health covers—₹1 to ₹2 lakh—with teleconsultation features that eliminate the need for employees to take a day off for minor health concerns. This reduces absenteeism and improves productivity, while still ensuring critical illness cases can fall back on ESIC.

Tech-Driven Insurance Solutions for MSMEs

Faiz Askari: What are the major solutions Policybazaar has launched specifically for MSMEs?

Sajja Praveen: Our offerings are both online and offline, catering to SMEs with as few as 7 employees to large corporations with 5 lakh+ employees. We recently launched ‘En Route’, a marine insurance platform that allows automated declarations via invoice photos using OCR tech. It simplifies compliance and saves time. Our range spans from single-transit marine policies to comprehensive fire, cyber, D&O, and employee group health insurance plans—customizable as per business needs.

Focus for 2025 and Policybazaar’s MSME Reach

Faiz Askari: What are your SME-specific goals for 2025? How many SMEs have you served?

Sajja Praveen: We’ve worked with over 40,000–50,000 SMEs and the number is growing. Our aim is to bridge the knowledge and access gap. Just like individual insurance evolved, SME insurance too will gain momentum as awareness improves and tech simplifies the process. We’re focused on building that ecosystem proactively.

Final Thoughts

As the MSME sector forms the backbone of India’s economy, managing risk through insurance becomes indispensable—not just for compliance, but for sustainable growth, talent retention, and resilience. With platforms like Policybazaar for Business, SMEs now have access to tools that were once the preserve of large corporations.

Also Read