There is a crisis of underinsurance among UK SMEs. Recent research from Aviva has shown that half of all small businesses are underinsured. Full business insurance is a crucial to safeguard companies and livelihoods. So, why do so many SMEs lack this vital protection? Paul Williams, CEO of Ripe, explores why this is and what SMEs can do about it.
UK SMEs are facing unprecedented levels of underinsurance. A recent study from our partner, Aviva, indicates that a startling 50% of UK businesses are underinsured, meaning that they don’t have the correct level of cover to protect them in the event of a claim.
SMEs account for three-fifths of the employment and around half of turnover in the UK private sector, so addressing the problem of underinsurance is critical if we are to unlock the potential of SMEs and support growth in the national economy.
The repercussions of underinsurance cannot be underestimated. Underinsured companies often face disastrous financial consequences following business-critical events such as fires, floods or legal action which leave them unable to operate. Added to this, SMEs often operate on tight budgets and margins, which not only risks their survival but, at times, even the personal finances of their founders. Given that the core purpose of SME insurance providers is to ensure the future of these businesses, it’s time for the sector to take action.
So, why do so many SMEs lack this vital protection? And importantly, how can this problem be addressed?
Why underinsurance exists
Small business owners are experts in what they do but can be less familiar with the world of insurance – an industry which can often be unnecessarily confusing and complicated. For newly launched SMEs and solo founders, this is especially true, as they often ‘wear all the hats’ in the business, managing everything from finances to marketing to customer service.
When insurance policies are rife with jargon and lack transparency, SMEs may be shoehorned into generic policies that fail to address their specific needs. Purchasing the right policy with the appropriate level of cover is therefore less likely as a result.
The issue isn’t just confined to start-ups; it can affect growing SMEs as well. As small businesses change and adapt quickly, their insurance policies need to grow with them. New equipment will be purchased, for example, new staff hired and bigger premises secured. Insurance policies must be expanded or businesses may find themselves underinsured once again. Overly complex legalese and policies can be a significant barrier to small business owners understanding the extent of their coverage and overall package, impacting whether their insurance stays relevant as their business grows.
With SMEs likely to face tighter budgets this year than ever before, this problem has become even more urgent. Higher interest rates, VAT thresholds and increased energy and labour costs mean almost half (47%) of British Chambers of Commerce members expect to raise their prices this quarter, according to their annual report.
As an industry, we must work to enable customers to accurately tailor their product based on their needs, ensuring that their coverage is both comprehensive and priced appropriately for individual business needs. With more people than ever before looking for insurance products online, we have a clear opportunity to adapt our own platforms and interfaces to best serve the specific needs of SMEs.
What needs to change
Insurance providers must step up, adapting to better serve SMEs, and creating real solutions to support small business owners. To start, it’s time to move away from complicated and inaccessible language, as well as ditching the outdated ‘one-size-fits-all’ approach that has long dominated business insurance policies.
In order to create bespoke solutions that prioritise the customer, insurance businesses must develop a deep understanding of the risks faced by SMEs across various sectors, informing hyper-personalised product development and ensuring customisable protection at the right price point.
At Ripe, we have focused on creating a proprietary platform to enable this new form of business insurance procurement. SMEs can tailor their policy, ensuring they only pay for what they need depending on the nature of their profession.
The future of insurance lies in data-driven, technology-enabled solutions that offer real-time, adaptable coverage – while, crucially, keeping customers’ needs front and centre.
Leveraging technology solutions to develop products that better serve SMEs, we can start to make positive progress in the right direction.
What the future holds for SME insurance
For too long, essential financial services products, such as insurance, have been designed without SMEs in mind. Small businesses need transparent, quick and easy to understand services, because they often have many other considerations to juggle every day.
Now, the insurance industry must develop products that adapt in line with the evolving needs of SMEs, and build quicker, more streamlined and bespoke policies. This shift has the power to bring on an industry-wide transformation for faster, better and more accessible insurance for all.
We’ve seen positive, but slow, changes across the financial services sector in the last few years. However, if insurance providers cannot adapt to more accessible and personalised, consumer-centric models, they will simply not survive in the years to come.
Ultimately, small businesses deserve better – and we now have an opportunity to rise to this challenge. I am very hopeful that our sector is poised for a pivot to success – both for us and for those SMEs we cover.
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