SMEs fear underinsurance will worsen as businesses cut cover

More than two in five SMEs believe their business will become more underinsured over the next 12 months as rising insurance costs continue to force firms to reduce or cancel cover, according to new research from Premium Credit.

The insurance premium finance provider’s latest Insurance Index found that 42% of SMEs expect their level of underinsurance to increase during the year ahead, while 29% believe it will remain unchanged. Only 23% said they expect their business not to be underinsured, with 7% anticipating an improvement. The findings follow a year in which 40% said their level of underinsurance had already increased.

The research found that 69% of SMEs have experienced higher insurance premiums over the past year, including 11% who said costs had risen dramatically. As a result, many businesses have cut back or cancelled policies across a range of cover, with vehicle insurance, property insurance, employers’ liability, cyber insurance and business interruption among the areas most affected. Key person insurance was the policy most likely to have been cancelled outright, with 23% of businesses doing so during the past year.

Despite the pressure on costs, there were signs that some firms are reviewing their insurance arrangements. Nearly one-third (30%) said they have started working with an insurance broker during the past two years, while 33% plan to increase employers’ liability cover and 28% intend to strengthen their cyber insurance over the coming year.

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.”