The challenging economic environment in the UK, including inflation, is leaving SMEs open to significant levels of uninsured risk, yet GlobalData findings suggest the majority of SMEs are not concerned about this.
Inflation, supply chain disruption, and labor shortages are not just creating challenging business conditions but are also putting businesses at increased risk of becoming underinsured. However, GlobalData’s 2022 UK SME Insurance Survey finds that 39.6% of UK SMEs are not at all concerned with regards to being underinsured, and only 13.4% are either very or extremely concerned.
Research from Aviva found that 32% of SMEs do not take inflation or supply chain issues into consideration when reviewing how much to insure their business for. High levels of inflation means that the level of insurance cover protecting a business’ buildings and physical assets, such as stock or machinery, is likely to need updating to keep pace with the increased costs. Despite this, the report from Aviva found that 28% of SMEs have not reviewed their policies in the last year.
In the event of a claim, being underinsured may result in economic losses for the policyholder, since the claim could exceed the maximum amount that could be paid out by the insurance policy. This may prove fatal for UK SMEs as the report from Aviva found that 10% said they could not survive if they had to pay up to GBP10,000 towards a claim that was not fully covered by insurance. Additionally, with UK inflation reaching 40-year highs in 2022 and the ongoing cost-of-living crisis having a damaging effect on small businesses, they will be unable to afford further issues.
Overall, insurers should see this as an opportunity to increase premiums, but they will first need to educate SMEs on the need to be fully insured – possibly with the help of brokers. Difficult economic conditions will undoubtedly see SMEs look to cut unnecessary costs, but the uncertainty of the last several years highlights the need for businesses to be protected against the unexpected.