Finance ministry cracks the whip on insurance companies for ignoring MSMEs

Reluctant insurers have failed to offer the cover especially curated by the ministry following the UK Sinha panel's recommendations

Even as insurance companies have ignored insurance policies designed by the Narendra Modi government especially for micro, medium and small enterprises, the finance ministry has asked insurers to check whether they are providing such covers.

The department of financial services (DFS) in the finance ministry had curated these product prototypes following the recommendations of the UK Sinha panel on MSMEs. However, insurance companies – both life and non-life – seem to have ignored these. According to insurance industry sources, though some generic products are available, there is hardly one in accordance with the prototypes drafted by the finance ministry especially for MSMEs.

Among the draft prototypes formulated by the DFS are a personal accident cover for MSME owners and employees, life cover for keyman and partners, an especially designed insurance prototype for MSMEs to cover their assets and income against catastrophes, an individual term plan for keyman and partner with the option to augment the cover through additional coverage accidental death benefit, accidental and total, and permanent disability and child support benefit.

“You are requested to furnish your comments on whether the above recommended covers are available in the industry,” the finance ministry said in a letter to insurance industry bodies. “If not, then it is requested that the above mentioned covers may be made available in the market to meet the requirements of MSME,” the letter, which has been reviewed by Business Standard, said. The finance ministry letter specifically refers to the UK Sinha committee’s recommendations on mitigating risk and impact of calamities for the design of insurance products to address the special needs of the MSMEs.

“Keyman or partner insurance of MSME, including the covers relating to term insurance, as well as accidental death benefit, etc, are offered as a product. It is not specific to MSMEs; it could be for any company,” said a top official of a private life insurance company.

The UK Sinha-led committee formed by the Reserve Bank of India (RBI) to address the issues with the sustainability of MSME had observed that the stress in 30-35 per cent of the accounts was due to payment delays and catastrophe and calamities. The panel had also highlighted that these units were overwhelmingly run as proprietorships; as a result, death or illness of the sole owner inevitably resulted in closure of the unit, loss of jobs and misery for families.

“The design of insurance products that address the special needs of MSMEs after a catastrophic event should be encouraged. This would include solutions for the maintenance of income in case of business interruption, cost of re-education, partner insurance, keyman insurance and capital for accessing loans. This insurance solution should be made available at an affordable price,” the committee had recommended.

MSMEs, which contribute significantly to the Indian gross domestic product (GDP), exports and employment generation, are a thrust area for the Narendra Modi government. According to the government’s estimate, the number of workers in unincorporated non-agriculture MSMEs in the country are 111 million.