GlobalData’s 2023 SME Insurance Survey indicates that the challenging financial circumstances presented by the UK economy are starting to have tangible effects on SMEs and insurers. In 2023, almost 75% of SME insurance provider switches were related (at least in part) to the cost-of-living crisis while 86.2% of all SMEs considering cancellations say it is a factor.
As UK businesses face higher operating and debt servicing costs, as well as dampened demand due to the cost-of-living crisis, many SMEs have been forced to cancel policies. GlobalData’s 2023 UK SME Insurance Survey reveals that, for 15 of the 16 products surveyed, more than 10% of SMEs cancelled a policy due to the cost-of-living crisis in 2023. Furthermore, almost 75% of SMEs that switched providers in 2023 did so due, at least in part, to the cost-of-living crisis. Across each SME size group, this figure becomes larger as the firm size increases. 71.2% of sole traders, 73.5% of micro-enterprises, 75.3% of small businesses, and 78.1% of medium companies switched at least partly due to the cost-of-living crisis. This illustrates the pressure many SMEs currently face and the broad desire for better value from insurance products. On average, 32.8% of SMEs said they switched providers due to the new provider’s pricing considerations.
Unfortunately, the situation may not have reached its peak. When asking SMEs about their thoughts regarding switching or cancelling policies in the future, an even greater number of firms tell of the impact the crisis is having on their decision-making. Almost 50% of SMEs that indicated they are considering making changes to policies in the future said this was entirely down to the cost-of-living crisis. When considering the crisis as a contributing factor (but not the only one), the figure surpasses 85%. As commercial insurance penetration diminishes insurers lose business, putting further pressure on them to maintain cashflow at a time when outgoings for claims costs continue to soar.
In addition, cancellations and coverage reductions will leave the UK SME landscape underinsured, leading to devastating economic impacts in the event of another catastrophe or adverse event. Over 60% of SMEs surveyed said they are concerned, to some extent, about the fact that their business is or could be underinsured. Yet despite awareness of the problems of underinsurance, many SMEs are left with no choice but to forgo insurance at this time.
Insurers are tasked with the unenviable role of alleviating many of these pressures while facing a host of their own. Meeting SME demands for cheaper (and less comprehensive) cover options is likely to be a good place to start in minimising much of this impact, as SMEs have made it clear that price is their key deciding factor at this time. While this is certainly easier said than done, failure in this regard will surely lead to more cancellations and thus the potential for a deeper crisis should the worst happen.
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