Briefing: Is embedded cover the answer to SME underinsurance?

Underinsurance has remained a stubborn and perennial issue for the insurance industry to address – both brokers and insurers can end up looking incredibly bad to insureds if they are surprised, at the point of claim, to be told that their reinstatement costs are not fully covered by insurance. 

In September 2024, Gallagher estimated that nearly half of all UK commercial properties were underinsured, with the average shortfall in cover running at 40%.

It is not difficult to imagine the stress this could cause business owners following a potentially catastrophic claim – not to mention the fact that this discrepancy in values may lead to total business failures in some cases.

The problem of underinsurance is prevalent across the entire gamut of the insurance sector, but is particularly prevalent in the SME commercial arena.

SMEs account for 99% of UK companies by sheer number and generate 50% of private sector turnover in the country. But, according to a YouGov study conducted between 9 and 19 January this year, 80% of SMEs do not always update their insurer on business changes and many lack the time to assess their insurance needs properly – around 21% of surveyed businesses said the process to obtain or renew insurance policies can take weeks that they don’t have. 

Additionally, standard commercial insurance policies are often designed for larger organisations, leaving SMEs with coverage gaps or unnecessary costs. 

According to Premium Credit’s research from May 2024, 27% of surveyed SMEs said they had reduced cover in the past year as premiums rose, slightly up on the 25% that reported this in the prior year’s research.

And, speaking to Insurance Times last year, Peter Norman, head of distribution at MGA OneBefore, said he believed that ”the insurance sector seems to have a blind spot [around] SMEs”. 

Embedding a solution 

Solutions to underinsurance have been tried with varying degrees of success – brokers, insurers and MGAs have all noted the importance of education to SME customers about keeping cover up to date.

But, as the aforementioned YouGov survey suggested, SMEs often either forget to update insurers or simply don’t have the time to – necessitating a more integrated solution. 

Enter embedded insurance. 

The purchasing of this type of cover is, as the name suggests, embedded into the purchasing or management process of other goods or services.

A report from March 2025, published by broker Willis in association with insurtech Kayna, explored how embedding insurance buying into vertical software as a service (SaaS) platforms used by SMEs could expedite more well rounded insurance purchasing. 

Vertical SaaS platforms provide industry-specific software to help businesses manage their operations and are tailored to the unique needs of each sector – such as construction or hospitality.

These platforms already integrate payrolls for staff, finance and customer management functions – and adding insurance into them could ensure that underinsured businesses are able to easily acquire targeted, appropriate cover while also presenting a boon to the distribution strategies of the insurance sector. 

In the Willis and Kayna report, the firms explained that this distribution method makes coverage “more accessible, convenient and personalised”, while also ensuring that “SMEs have the right level of protection at the right time, without the hassle of traditional insurance”. 

The embedded insurance market is growing globally and is expected, according to predictions from Deloitte, to reach £54bn ($70bn) in global revenue by 2030. 

Ensuring customers are properly and, as far as possible, completely protected by insurance policies is perhaps the fundamental responsibility of the insurance market – and engaging with the growth opportunities of the embedded insurance market by partnering with vertical SaaS providers will be vital to future efforts to combat underinsurance in the SME market. 

In the near future, with tailored, appropriate cover just a click away for many SMEs that take advantage of embedded insurance purchasing, insurance firms that have developed vertical SaaS provider relationships will be well placed to capitalise on this sector.