Just one in 10 SME owners claim to have taken out income protection insurance, according to a report from the Federation of Small Businesses.
The report Paying a Premium? which surveyed 819 small business owners found just 11% of those polled said they had income protection insurance, which covers an individual in the event of not being able to work due to illness.
The research also showed three in five small businesses had seen their insurance premiums rise in the last year and three in 10 said they found it hard to understand what their insurance covered.
One in six (16%) who had renewed or switched their policy in the last year said their cover had been restricted.
And the majority (52%) of those whose premium costs had risen said the rise was of 11% or more, while some individual businesses had seen costs rise far in excess of that – particularly following a claim.
Consequently, the FSB called on government, insurers and the Financial Conduct Authority to work together to agree specific conditions for forms of government support that should not be taken into account when calculating business interruption insurance claims.
The FSB recommends that the FCA should be explicitly required to consider intervening in a market if it becomes clear that there is a segment or sector of businesses that are unable to obtain insurance.
PII and public procurement
The small business body added that government should convene discussions with relevant sector-specific regulators and professional associations, to ensure that professional indemnity insurance (PII) requirements that are imposed as a condition of being able to practise are assessed so they do not disadvantage small businesses.
The FSB also said the regulator should carry out a market study of PII, given recent price increases and market hardening.
The FSB further called on government to use the Procurement Bill to remove barriers for SMEs in accessing public procurement opportunities.
This should, it said, include commitments not to impose unlimited liability for public contracts, to share risk reasonably, and to ensure that both PII and public liability insurance requirements in public contracts were proportionate to the size of the contract.
Martin McTague, national chairman of the FSB, said: “Cover for risks of all kinds – from fire to flood to less tangible dangers – is vital to small businesses’ continued ability to trade, but our report indicates that there are problems lurking under the surface which, if left unaddressed, could further hamper small firms’ ability to compete on an equal footing.
“Rising cover prices leave firms caught between a rock and a hard place, forced to pass on higher costs to customers, or to cut back on investment and expansion – or even to risk opting for a lower level of cover, which may leave them painfully exposed if the worst should happen.
“Long, complex contracts present difficulties to smaller businesses without a whole department dedicated to deciphering legalese, and runs the risk of small business customers believing they have purchased adequate policies, when in fact they have not.
“Meanwhile, procurement processes which mandate unnecessarily high levels of insurance for relatively small contracts put them out of the reach of small businesses, once again leaving them on an uneven playing field.
“Our recommendations, taken as a whole, will help to make insurance easier and more cost-effective for small businesses to access, allowing them to be sure that, by paying for a premium, they are getting a premium product in return, one suited to their business’s particular needs.”