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Business Insurance is Not Luxury

Parag Gupta

If you are an entrepreneur and run a business, you must insure it. In today’s business landscape it is more of a necessity than a luxury.

A significant number of establishments in the building materials space are small and medium enterprises. Thanks to the government’s drive for creating SMART cities all across the country, the market size of this industry is set to grow exponentially. But growth in business also results in growth of liabilities and risks.

According to a FICCI-KPMG report, only 10% of employees of SMEs have health cover, and only 0.1% of other core property risks like fire, marine etc. are covered.When these businesses do not take adequate measures to protect themselves, one can assume that India’s SME space is prone to various types of risks. These risks can have a colossal impact on the existence of several ventures.

Businesses can cover their risks by purchasing insurance. This will ensure protection against liabilities arising out of burglary, fire, material damage, riots, storms, floods, damage of mechanical or electrical appliances, dishonest employees or legal cases. Some of the specific types of insurance that businesses can avail include:

  • Marine insurance, which provides cover for transportation of goods from one place (point of origin) to another (final destination). This cover insures against risk involved in both domestic and overseas transits. It also covers thefts en-route and all loading/unloading risks.
  • Insurance of civil or mechanical construction works against any damage caused even after reasonable care is taken.
  • Liability to the business due to hazardous activities on manufacturing premises or due to negligent handling of third party information or professional negligence.
  • Cyber insurance to cover risks from cyber-attacks and any third-party liability arising from such attacks or leak.

There are several other benefits of insuring an enterprise, including:

  • In several cases the owner of an SME has invested most of his savings in business. Any incident that has a financial implication on the business will also impact the owner’s personal savings. Insurance offers protection against such an eventuality.
  • Quite a few SMEs are vulnerable since they lag behind in safety practices. Fire based incidents as well as flooding during rainy season cause damage to machinery and equipment. There could also be loss of life and limb. Financial damages caused to the enterprise due to unfortunate disasters can be reduced thanks to insurance.
  • These days institutions such as banks and NBFCs offering financial assistance highlight that adequate protection is a necessary collateral condition.
  • Talent retention, especially among the senior workforce, is better when the business adequately protects their interests as well as ensures adequate compensation in event of death, bodily injury or disablement.
  • In the case of cash intensive businesses, burglary or accident can result in loss of currency notes. A capable commercial insurance plan would protect against such misfortune.
  • SMEs are heavily involved in transit of goods from one destination to another. By insuring goods in transit, a smart business owner protects his interests from the vagaries of fate.
  • Almost every SME stares at the risk of going bust if the promoter or any other key member dies. The keyman insurance would provide a large amount that would be sufficient for the enterprise to hire another senior executive to keep it running.
  • In our countrynearly two third of enterprises receive payments from clients after 60 days or longer, and one third receive payments after 90 days or longer. Indian SMEs also have to engage with customers who default on payment. Not many are aware that they can insure their business against such situations as well.
  • Over 75% of small and medium enterprises in Indiaare sole proprietorships or partnership. As these types of ownerships can put both personal and business liabilities at risk, insurance is a no-brainer to deal with this risk.
  • Incidents like mob rage happen in any corner of our country. One may not be able to protect physical assets from vandalism but an insurance cover will at least compensate for the destruction that would have been caused.

To enjoy the above benefits, it is important that due care is taken when purchasing insurance for businesses. To begin with it is important that valuation of assets is done correctly so as to have adequate insurance. Many a times businesses tend to submit a lower insured declared value to reduce premium, thereby resulting in underinsurance. This would translate into additional costs to be borne by the company in times of crises.

In case of marine and health policies, it is important that timely declarations are made about the content of shipment and pre-existing diseases to ensure that a claim is not rejected on technical grounds due to a mis-declaration. Equally important is keeping a proper record to establish cause and insurable interest. Failing to do this could result in a rejected claim.

It is important to understand that no insurance provider will cover willful negligence. The insured company must take all reasonable steps to control losses arising from unforeseen circumstances. Failing to do this will result in at least the claim against the avoidable loss being rejected. Equally important is to report the claim as soon as a loss occurs, and co-operation with the surveyors. This will allow the process to be completed quickly, and surveyors will be able to get all the evidence they require.

Business cycles are uncertain, yet the protection of an enterprise can be certain. The cost of indecision may be substantial if a business owner dithers about insuring his business. One can begin by assessing the value of items to be insured as it will offer a better perspective of the coverage that is required. With several commercial insurance options available in the market, it is important to determine the right fit. Being aware of the fine print and understanding how servicing and claim settlement works is critical before finalising an insurance plan.

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The author is chief underwriting officer at Bharti AXA General Insurance. Views expressed herein are personal.

 

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