In our market research, we were able to corroborate with the various reports from KPMG and FICCI on the penetration levels in India. While this was not a surprise for us, what was more disturbing was the quality of the advice that the SMBs that did purchase insurance.
The first point of contact that SMBs had with insurance was with their friendly neighborhood bank’s bank manager or an relative who was an insurance agent. With due respect to these people, we must say that they don’t do their job properly. While we dont have evidence to prove categorically that the advice is inadequate our personal experience says that. When you and me go for a bank loan for our house, the bank forces us to take property insurance. This is good for the home owner though the bank person does this recommendation for commissions. While this is fair and all in the game how much insurance do they ask us to take? Option 1: For the entire property value. Option 2: For the amount of loan that you have taken. If you selected option 1, I think either you might have time traveled to a utopian future or you might be fortunate to have a naive bank personal.
Hence the point is very clear that the advice received by business is highly questionable. Coming back to the point that we wanted to share with this post is that there is one kind of insurance cover that is called Business Continuity insurance. This is sometimes also called Profit Loss insurance. This cover protects the business against the profit that they might loose under an untoward situation. Lets say we have a restaurant called Indian Ocean. Flood hits the city and the restaurant is inundated by flood water. While Fire and Allied Perils policy (property insurance cover in simple terms) covers them for the loss due to the damage to the structure and the contents of the building, what about the profit loss the restaurant suffers because they had to shutdown their operations for say a month? This is precisely what Profit Loss insurance is all about. The premiums for such an coverage approximately comes to INR 8 for every lakh of profit. If lets says this restaurant makes a profit of INR 20000 per day. If we guess that they might have to shutdown for say 10 days a year. This means that the business will have to pay a premium INR 16 per annum for profit loss insurance. Isnt this worth it? I feel it is. What do you think?
Why are banks or agents not pushing Business Continuity insurance? My guess is that they themselves don’t understand its concept.
If you are a business owner who needs help with managing risks or advice on insurance do reach out to us.