At the start of 2021, there were 5.5 million small and medium-sized enterprises in the UK.
But in our view, the real story is about the micro and small firms, with fewer than 10 or 50 employees respectively.
Many now appear to be teetering on the dividing line between resilience and fragility. The withdrawal of government support, unpredictable cashflow, changing consumer preferences, invoices not paid on time and an absence of the large credit facilities many large companies almost take for granted – the list of causes goes on.
The importance of resilience
While there may not be much that reinsurers and insurers can do to combat these risks, there are ways in which the industry can bolster resilience among them, particularly in some enterprises where they are simply a collection of a small number of specialist individuals.
One obvious area is helping to provide adequate levels of insurance.
Often, the dividing line for a small business is just a well thought out plan – enabling an enterprise to navigate or recover quickly from difficulties.
Such planning includes topics such as succession arrangements and what happens to a small business if they lose the person or people critical to developing the business.
Insufficient and incorrect cover
There are data sets for the whole of the UK market about levels of insurance, but our own database suggests there is a high level of underinsurance in this part of the market.
For example, in Term & Health Watch 2021, Swiss Re reported total new market-wide business protection term assurance sales of just 11,975 policies and a further 1,194 business protection for income protection policies.
Term cover was down by 43%. Relevant Life policies, often purchased by business owners to provide life assurance for their dependants, were down by 17.5%.
Another way of looking at this, is that there were almost twice as many life policies covering (mostly) business owners on a personal basis – 23,521 – than cover protecting the businesses themselves. Intuitively, both these numbers should be much higher.
But it seems that business owners who wish to lock in greater levels of resilience for their business are neither buying the right kind of insurance nor are they buying enough.
Business protection term policy sales in 2020 were just 0.75% of total new term policies in the year.
Underinsurance can undermine resilience
It’s no mystery why some business owners are underinsuring.
There are too few advisers who specialise in actively supporting the person risks and succession planning issues facing businesses.
Yet, these risks must be presenting themselves every single day. This is surely an ideal case to write it or refer it using a signposting arrangement.
Many micro and small firms use accounting software which keeps costs low and stores everything in the cloud.
But it also blocks off a very useful source of strategic advice on insurance and other matters: accountants.
Anecdotally, from our many market soundings, is a perception that business owners simply do not have the time to think about something outside their core responsibilities.
And this feeds into another reason: a lack of awareness and education around what insurance can offer and solve.
There is certainly room for the industry to coordinate better, adapting traditional views of insurance segmentation to suit more nuanced groups of customers in a consumer-led approach rather than one driven by industry silos.
For example, why would or should a business owner see any difference between protecting their business from a fire vs protecting it from the impact of their own inability to work?
The result, in its financial impact, could well be the same.
Bolstering resilience
Returning to ways in which insurers and reinsurers can help the smaller end of the business spectrum, there are probably four things any company could do.
The first is to engage business owners through creating and deploying human interest case studies. We all respond to positive stories in our daily lives as well as when we’re at work – and insurance, especially for micro and small businesses, is very much an emotional sale.
As a sector we could also do more to engage with business schools. Are insurance and risk management core components of the syllabus? We believe they should be.
Going back to the rise of online accounting software – it’s clear these packages are popular. But if they mean less access to good advice from accountants there’s no reason why the software packages couldn’t include information, education and perhaps even transactional capabilities on insurance.
Lastly, there is product design. Those who are successful in the market have properly tailored business protection solutions and are addressing changing consumer preferences through the creation of new and intuitive products designed with consumer needs in mind.
Products need to include features specifically designed for businesses. Good examples are business specific guaranteed insurability options and facilities such as immediate cover.
A post-Covid world might be met with an increase in start-ups and small businesses.
It is important to ensure they have access to the right products and distribution reach, and that business owners have access to relevant advice and information. Failure to do this represents a real missed opportunity for insurers.