For service-based MSMEs, particularly IT and ITES companies serving foreign clients, professional liability can be critical. A missed deadline, processing error, incorrect information or system-related mistake can cause a client financial loss and lead to an Errors & Omissions (E&O) claim. When working with a foreign client, the business can face contractual requirements, different legal standards and potentially higher litigation and defence costs.
Oorjita Lath, Founder & CEO of Okube Advisors
India’s economy is powered by millions of businesses, with MSMEs forming its backbone. MSMEs are small and medium-sized businesses that play a major role in India’s economy, covering businesses across manufacturing, services and trade.
The sector encompasses more than 7.47 crore enterprises and employs over 32.8 crore people, making it India’s second-largest source of employment after agriculture.
Their economic footprint is enormous. MSMEs contribute about 31.1% to India’s GDP, 48.58% of exports and 35.4% of manufacturing output.
But scale also creates exposure. A garment exporter in Tiruppur can spend fifteen years building a business, one good season at a time. Then a fire breaks out in the warehouse. By morning, ₹40 lakh worth of stock has turned to ash. Without proper insurance cover, one event can put years of accumulated capital at risk.
For MSMEs,Credit Guarantee Loans(CGL) becomes particularly important as they enter export markets. MSMEs account for around 48.58% of India’s exports, with more than 1.73 lakh MSMEs exporting in FY2024-25.
An Indian exporter can face a liability claim in the country where its products are sold if it causes bodily injury or physical damage in the foreign country, where litigation costs and liability standards may differ significantly from India. Foreign buyers also require specific Insurance coverages as per the contract.
If a product causes harm, its manufacturer, importer, distributor or seller may be held liable under the Consumer Protection Act, 2019. Liability may arise when the harm results from a defect, inadequate instructions or warnings, or a failure connected with the product’s sale.
For businesses that distribute or sell physical products, product liability adds another layer of protection against claims arising from defective products, inadequate warnings or other covered failures.
A product issue can also trigger a costly recall, making appropriate product liability and recall protection particularly important for growing MSMEs. Recalling products from foreign locations are also very costly in nature.
A recall can involve multiple process including identifying affected products, withdrawing them etc. These costs are not automatically covered but requires extension to get covered.
Professional liability, because your advice is a product too
For service-based MSMEs, particularly IT and ITES companies serving foreign clients, professional liability can be critical. A missed deadline, processing error, incorrect information or system-related mistake can cause a client financial loss and lead to an Errors & Omissions (E&O) claim. When working with a foreign client, the business can face contractual requirements, different legal standards and potentially higher litigation and defence costs.
Under the Consumer Protection Act, 2019, consumers can challenge service providers for “deficiency” in service, including negligence, errors or omissions.Professional indemnity or E&O insurance can help protect the business against covered claims arising from such errors and omissions.
Cyber liability is no longer optional for anyone
IBM’s 2026 Cost of a Data Breach Report found that the average cost of a data breach in India reached ₹25.5 crore, an all-time high and 15.9% above the previous year. Cyber risk is no longer limited to technology companies or large financial institutions.
In April 2026, CERT-In issued a high-severity advisory warning MSMEs that AI powered attacks could cause service disruption at a speed and scale that previously required teams of skilled hackers.
D&O, for the day someone blames leadership directly
For startups, Directors and Officers (D&O) insurance (D&O) insurance can also become important when raising external capital. Venture capital and private-equity investors expect a company to have D&O cover to protect directors and officers against claims arising from their management decisions.
Claims against directors may arise from decisions and actions taken as part of their duties. A clean operating record does not eliminate the possibility of a claim; it simply means there is no claim yet.
Commercial property and business interruption, the pair nobody thinks about until they need both Property insurance protects insured physical assets against covered events such as fire, flood and other perils. But physical damage cover does not automatically compensate a business for all the income it loses while operations are disrupted.Business interruption covers the income loss that would have happened during such situations.
In the august 2026 Gujarat floods, insurers are expecting ₹4,000–5,000 crore in claims, with property insurance accounting for the bulk of the losses.
Workers’ compensation, which is rarely glamorous and always necessary
India’s employee-compensation framework has changed significantly since the four Labour Codes came into force on 21 November 2025. The Employees’ Compensation Act, 1923 was subsumed into the Code on Social Security, 2020.The Code establishes employer liability for employment injuries and occupational diseases arising out of employment.
The framework is designed to provide compensation for employment-related injury or death. For businesses, more than being a compliance issue. It is part of managing the risk which comes from operating the business.
Insurance should grow with the business
Insurance isn’t a checklist you complete once. It’s a mirror of your business; it changes with how your business grows and in which industry it operates.
Often, the problem isn’t that a business ignored insurance altogether; it’s that its coverage didn’t keep pace with the direction it is moving. That gap is where an unexpected claim can expose the coverage gap in your business.