Analysis: The Knowledge Survey – SMEs' underinsurance problem
Brokers say small businesses focus too much on price and not enough on details and scope of cover
One-quarter of the brokers who took part in this month’s survey admitted they had seen claims repudiated by insurers in the past year because SME clients were underinsured.
Moreover, 82% said they often, or sometimes, come across examples of underinsurance and 16% have seen a small company go out of business because it was grossly underinsured and therefore any claims payouts were insufficient to get the business back on its feet.
Respondents were also clear about the primary reason for SME underinsurance: too much focus on price and not enough attention on the details and scope of cover, according to nearly two-thirds. While small businesses have always been price conscious, there was a feeling this has been exacerbated by the move online, particularly among micro businesses, as well as other sources of disintermediation.
The perils of underinsurance are often only discovered when a claim arises. “Many SMEs are taking out insurance at the lowest possible price, but still expect to be covered in full if a claim happens,” said one Bedford-based broker. “SMEs, especially those buying online, do not understand what they are covered for and so are disappointed when they claim,” said another.
Small businesses are simply not getting the advice they need, brokers said, with 95% of respondents concerned those buying their business insurance online were at risk of not taking out adequate coverage.
While property damage, business interruption and liability risks remain the key concern for SME customers, according to 74% of our respondents, emerging risks such as reputation, cyber and supply chain are moving up the agenda. Some 91% of brokers said they were talking to their SME clients about cyber risk cover.
And in this changing risk landscape, advice will continue to be important, respondents believe. While many conceded they were developing online placement solutions for customers at the micro end, larger SMEs need for more dialogue, both during placement and when a claim arises.