The hidden risk to Britain’s small businesses…. and most owners don’t see it coming

When you’re grappling with cashflow, customers and compliance, insurance probably isn’t at the top of your agenda as a small business owner. It’s in the “tomorrow” pile. It’s often confusing and too easy to postpone but without it, if something does go wrong, years of hard work can be wiped out overnight.

The new SME insurance guide published this week by the Association of British Insurers spells out clearly why having insurance and the right insurance matters. Small businesses across the UK are leaving themselves vulnerable without it.

Micro, small and medium-sized enterprises make up 99.2% per cent of UK businesses. Yet research commissioned by the ABI shows large numbers are operating without cover that reflects the risks they face. Nearly half of businesses surveyed said they had physical premises, but fewer than a quarter had business interruption insurance. More than half relied on portable electronic equipment, but only a third had commercial contents cover. Over half used software or cloud services, yet fewer than three in ten had cyber protection. Some didn’t even have policies required by law like vehicle and employer liability cover. It’s not just absence of insurance that’s a problem but underinsurance. If you don’t have enough cover for the full cost of the loss your claim may leave you short.

Photo by Mehdi Mirzaie on Unsplash

These aren’t exotic risks. They are everyday realities for modern businesses. A flood, fire, ransomware attack or your key supplier going bust are real possibilities. In any of those events you may be able to survive with the right insurance in place, beforehand. Without it you’re likely to face closure, and you can’t buy the insurance after the disaster has happened.

Another big issue is that we buy insurance and rarely review the policies. Only half of businesses had looked at their insurance cover in the past year. What was the right cover then may not be right for your business now. If you’ve taken on people, moved premises, adopted new tech or changed how you trade, your policies could be out of date, leaving dangerous gaps.

The ABI guide aims to cut through the fog. By explaining what cover is legally required, what may be sensible depending on the business, and how to think about risk when you renew, it helps business owners ask better questions. Misunderstanding, rather than mistrust, appears to be the biggest barrier to having the best cover. The research shows business owners generally trust insurers but struggle with complexity, awareness and affordability.

There are recommendations in the report and insurers, brokers, comparison sites, business bodies and government all have a role to play in making insurance easier to understand, tailor, and review. When it comes to renewing a policy it’s not enough to default to the “same again” because businesses are dynamic. Brokers, in particular, need to emphasise the need for personalised advice, not just focus on price.

A resilient small business sector is essential for productivity, employment and growth. Lack of insurance and under-insurance aren’t just private risks; they can have knock on impacts on the whole sector and the economy.

Insurance may never be the most exciting part of running a business and may seem like just another additional expense. The real question for any business owner, though, is not whether they can afford to insure properly, but whether they can afford not to.