SMEs are increasingly worried about being underinsured as they cut back or cancel business insurance policies.
Premium Credit’s Insurance Index, which monitors insurance buying and how it is financed, found more than two out of five (42%) believe their level of underinsurance will increase in the year ahead while 29% believe it will stay the same. In the previous 12 months, 40% said their level of underinsurance increased and 28% said it was unchanged.
Just under a quarter (23%) said their business will not be underinsured in the year ahead, while 7% believe their level of underinsurance will decrease. In the previous 12 months, just over a fifth said their business was not underinsured, while 7% said the level of underinsurance decreased.
However, there are positive signs – nearly a third (30%) said they have started working with insurance brokers in the past two years and some firms will increase cover over the year ahead with 28% planning to increase cyber cover and a third (33%) improving employers’ liability cover.
Part of the reason for underinsurance is cost, as SMEs are grappling with increases in premiums, the research found. Around 69% said costs had increased in the past year, including 11% who said premiums had increased dramatically.
That is driving firms to cancel or cut back cover across the full range of policies – firms were most likely to cancel key man cover last year, with 23% doing so, the study found. In the year ahead, it is key man cover which is again most likely to be cancelled, with 22% thinking they will do so. However, 19% will consider cancelling D&O cover (Directors and Officers liability) and 18% specialist cover.
Jon Howells, Chief Commercial Officer, at Premium Credit, said:
“Underinsurance is a real issue with substantial numbers of SMEs expecting the problem to get worse in the year ahead, despite some positive signs that SMEs are planning to increase their levels of cover.
“Premium increases can be an issue and it is positive that more firms are working with insurance brokers as a result and we would urge more to do so. They should also be considering premium finance as a way of taking the heat out of lump sum payments and managing cashflow.”
