From Red Sea to Hormuz: Why MSMEs must rethink risk cover

Five years ago, geopolitical risk was something we read about in the business pages. Today it is a business condition.

The Russia–Ukraine conflict sent commodity prices spiralling overnight. Red Sea disruptions added weeks to trade routes that businesses had built their entire supply chains around. And earlier this month, when the Strait of Hormuz came under pressure, as many as 22 Indian-flagged vessels carrying 611 seafarers were stranded in the Persian Gulf region, unable to move. Six LPG tankers and four crude cargoes, all India-bound, remained stuck on the western side of the Strait until the situation eased.

These are not headlines from some distant market. They are the daily reality of Indian business today. And for cities like Kanpur, Tirupur, Ludhiana, Surat, and Moradabad . India’s real export engines in every such disruption lands directly on the business owner’s desk. Often without warning. Almost always without adequate financial protection.


So the question worth asking plainly is this: if another such event hits tomorrow, are we prepared? when we look at Kanpur’s leather exporters, over Rs 500 crore worth of consignments were stuck in transit during the Strait of Hormuz disruption. In 2023, during the Red Sea crisis, the same community had to hold back nearly Rs 100 crore worth of shipments because shipping companies refused to cover conflict-affected lanes. Two crises in under two years. Same community, same vulnerability. A Tirupur-based garment exporter recently lost a €2 lakh order after a European buyer invoked Force Majeure citing regional conflict risks. When the claim was filed, the Trade Credit Insurance did not respond. The policy had a standard war exclusion clause. Stories like this one repeat themselves every time a crisis hits. And they don’t have to.

Most MSME owners do not even know this gap exists until a claim comes back empty. Standard commercial insurance policies carry war exclusion clauses. If a loss is linked to armed conflict , directly or indirectly , the policy will not respond. This is not fine print. It is a fundamental limitation that sits at the heart of most standard policies.

Add to that the Force Majeure clauses inside most commercial contracts, which allow buyers to walk away from their obligations the moment a conflict qualifies as a trigger. So when a crisis hits, the buyer cancels legally, Trade Credit Insurance does not respond, and the entire loss lands on the small business.

But war exclusions are just one part of the problem. In my experience working with MSME owners across sectors, three other blind spots come up repeatedly.

The first is outdated coverage. Most policies are auto-renewed year after year without anyone reviewing asset values, revenue figures, or the actual scale of operations. When a claim comes, the settlement falls short simply because the numbers declared no longer reflect the business we are running today.

The second is single-risk thinking. We insure for fire, theft, and property damage. Meanwhile, Business Interruption, supplier failures, and cyber risks sit completely outside our protection. We don’t even know we’re exposed because nobody has asked us about it.

The third is compliance-driven insurance , coverage bought to satisfy a lender or a buyer’s requirement, with no real understanding of what it covers or how to use it. The right conversation with an advisor, before renewal and not after a loss, can completely change what that policy actually does for us.

But the good news is the fix does not require large budgets or specialist legal teams. Here is where to begin.

Start by reviewing our policy, not just renewing it. Ask our insurer to walk through our actual operations, our supply chain geography, and our key dependencies. Ask specifically about Business Interruption cover , most MSMEs don’t have it and don’t know it exists. It covers loss of income when operations are disrupted, which is exactly what a geopolitical crisis causes.

If we export, ask about Trade Credit Insurance with an explicit war risk extension, and Marine Cargo cover that accounts for conflict-affected routes. These products exist. But they have to be asked for. Insurers do not offer them by default.

Check out the existing policy specifically for war exclusion clauses. Understand what triggers them. Understand what doesn’t. And know our claim process before we need it and not after a loss has already happened and we are scrambling to figure out who to call.

Even at a macro level, the response to the Hormuz disruption earlier this year showed what preparedness looks like. The government moved quickly , JNPA offered 100% rebate on ground rent and dwell time charges for stranded containers, and ports offered concessions on anchorage and berth hire. That is a system responding in real time. Our insurance coverage should give us the same ability to respond when the shock hits us directly.

India has 63 million MSMEs. We employ nearly half the workforce and contribute almost 30% of GDP. We sit at the heart of this country’s ambition of becoming a developed economy by 2047. And yet most of us are carrying risk exposure we don’t fully see, and coverage that would not hold up when that risk actually hits. The insurance industry, intermediaries, and policymakers all have a role in closing this gap. Simpler products, clearer advisory, faster claims. These are not aspirations. They are obligations. But it starts with us.

If geopolitical tensions disrupt a trade route tomorrow, if a buyer invokes Force Majeure and cancels a major order, or if cargo remains stranded for weeks , will the business survive the financial shock?
If the answer is uncertain, that is where the conversation needs to begin.

Author is Founder at Square Insurance.