Insurance as a catalyst for risk appetite and sustainability of MSME in Kerala

Abstract

The Micro, Small, and Medium Enterprises (MSME) sector acts as a backbone of theKerala economy, contributing significantly to employment generation and industrialoutput. However, the sector is characterized by high vulnerability to external shocks,financial fragility, and a reluctance to adopt aggressive growth strategies due toinherent risks. This study investigates the role of insurance not merely as a risktransfer mechanism, but as a strategic catalyst that enhances the risk appetite and long-term sustainability of entrepreneurs. Employing a descriptive and analytical design,primary data were collected through structured questionnaires from 385 MSMEowners across all districts of Kerala. The study utilizes Structural Equation Modelling(SEM) to evaluate the interrelationships between insurance literacy, risk appetite, andsustainability, alongside a multigroup moderation analysis to assess variations acrossenterprise categories. The findings reveal that demographic and firm-level variables—specifically age, education, and prior experience—significantly determine variousdimensions of insurance literacy. Structurally, the study establishes that insuranceliteracy positively drives MSME risk appetite; however, this influence is derivedprimarily from psychological factors such as attitude, behaviour, and confidence,rather than theoretical knowledge. Furthermore, insurance literacy was found todirectly bolster economic sustainability, while attitude and confidence specificallyenhance social sustainability. The multigroup analysis indicates that these dynamicsare not uniform; significant differences exist between Micro, Small, and Mediumenterprises, particularly regarding the impact of behaviour on economic sustainability.The research concludes that psychological drivers are more pivotal than theoreticalknowledge in fostering resilience, suggesting that policymakers should move towardtailored, psychology-based interventions rather than uniform financial literacyprograms.