A recent study from Premium Credit has revealed that over half of SMEs have stopped paying for business insurance policies as a way of cutting costs during the coronavirus pandemic. The research, which surveyed over 150 UK SMEs, found that 26% had abandoned their employers’ liability insurance, 22% had stopped paying for professional indemnity, while nearly one in five (19%) no longer had business interruption insurance.
Other lines of business commonly dropped by SMEs in the past months include business property cover, product liability and cyber insurance.
A worrying trend
More concerning still was Premium Credit’s finding that nearly two in five SMEs (37%) are currently using credit to fund their insurance premiums. Of these, many are using their business credit cards, while more than half of business owners have resorted to using their own personal credit cards to keep up their premiums.
As shown by a McKinsey report released in June, the COVID-19 crisis has had an immense impact on the UK’s SME sector. Of the businesses surveyed, four in five said their revenues were declining, while a quarter stated that they were concerned about defaulting on loans. It is therefore understandable that small and medium-sized businesses are desperately cutting costs in hopes of staying afloat through the pandemic.
Risks of cutting back on business insurance
However understandable businesses’ motivations may be, it’s a mistake to think that insurance policies are a good place to start – especially in the current climate. The potential ramifications of being underinsured or uninsured could be disastrous.
Unlike larger companies, which are more likely to have the cash reserves required to recover quickly from unexpected events such as fires, floods or accidents in the workplace, SMEs are much more likely to be reliant on an insurance payout. Having to pay out of pocket in the event of situations like this would likely sound the death knell for many smaller businesses, while being underinsured could result in insufficient payouts that leave the business still struggling.
For businesses that provide advice or services, being adequately covered for professional indemnity is equally important. These claims can run into the millions and take years to resolve, so the effects of being uninsured or underinsured can be devastating.
What do SMEs want?
In order to help brokers to assist clients looking to cancel their business insurance, it’s important to understand what SMEs want from their insurance providers in these troubled times. A McKinsey survey from August fortunately sheds some light on this question. The survey asked a number of SMES: “Taking into account how COVID-19 has changed your business, how important are the following parameters in selecting an insurance provider?”
The results make for interesting reading. The top three parameters selected by SMEs were good value (57%), a product that suits their needs (52%) and the ability to talk to a human (52%). Additionally, between May and August, the number of SMEs selecting ‘lowest price’ as an important parameter shot up by 7 percentage points to sit at 49% – a further indication of the heavy financial pressure many are currently under.
Brokers looking to help their clients, therefore, should first choose telephone or video calls to communicate with their clients in person and try to alleviate their concerns. It is important to explain to clients the ramifications of cancelling their insurance mid-policy, and the importance of insurance to their business more generally. If they are in two minds about renewing their policy, then brokers should do their best to ensure they renew by finding the most suitable product for them at the best possible premium. Not easy in the current climate, granted – but that’s where we can help.
Focus’ access to markets
Here at Focus, our access to markets and partnerships with ‘A’-rated insurers put us in an excellent position to find the best possible insurance solutions for your clients. If your business clients are currently struggling with their insurance premiums, then come to Focus and we’ll be happy to see how we can help. Just call 0345 345 0777 or email email@example.com.