A revealing report into the UK’s fast growing number of small to medium enterprises has revealed that almost a third of SME’s do not have the correct business insurance.
Ranging from zero to nine employees, micro enterprises account for 95.5% of all UK SMEs in the private sector and whilst this equates to a huge number, it’s also a real concern for Britain’s economy as other findings demonstrate that 55% of small and medium-sized enterprises do not survive more than five years.
Small business is the backbone of Britain and tackling the 29.1% without the appropriate cover should be considered a massive opportunity for insurance brokers and insurers alike, however, this knowledge does not solve the problems which brokers and insurers face day-in, day-out.
Product penetration and underinsurance have long been an issue for the insurance industry but Verdict Financials 2016 UK SME Insurance Survey has identified the clear gap in the SME market.
Richard Willsher, author of the paper Fixing the SME market states:
“Part of the trouble seems to be that SMEs don’t spend much time thinking about insurance or about risk management. Instead, they are focused day-to-day on the practicalities of running their businesses”
With this in mind, brokers and insurers should be looking to educate businesses on the importance of insurance for the sake of their financial future; however this can prove difficult when the most common business insurances such as public liability are not mandatory by law.
Essentially, if small business owners consider themselves at low risk of a claim and the law does not require them to have insurance, the less likely they are to purchase cover. Survival for SME’s ultimately depends on growth and working to a lower budget – which doesn’t always make room for ‘grudge purchases’ such as insurance. But are businesses setting themselves up for failure by not preparing for the worst?
Danielle Cripps, analyst at Verdict Financial said:
“Businesses of all sizes require insurance, and SMEs could be argued to be most in need of insurance as they have the fewest resources and least capacity to recover from financial losses.”
SME’s are either gambling with their businesses by deciding not to take out insurance unaware of the risks associated with not insuring their business but equally unaware of the benefits and financial protection it can provide.
Ultimately, the solution lies in both education and competitive pricing. If brokers and insurers want to explore this area of potential growth then informing customers that insurance is not only a worthwhile purchase, it could be cost effective and the cover provided essential to the longevity of their business.