Opinion: Are micro firms buying commercial covers like a personal lines customer?

According to the Department for Business and Trade’s Business population estimates for the UK and regions 2024: statistical release, published in October 2024, there were 1.161 million micro businesses operating in the UK last year.

Sources such as the government, Citizens Advice and the FCA define a micro business as a firm with less than 10 staff that records an annual turnover of less than £2m.

The scale of micro businesses does present a challenge when it comes to the penetration and understanding of commercial lines products.

Recent market feedback heard by Insurance Times indicated that many micro businesses and one-man-band operations tend to purchase or view their commercial covers in much the same vein as personal lines products – however, personal and commercial policies are often presented, phrased and typically sold in very different manners, with the latter typically assuming a level of base insurance knowledge that might not actually be present when it comes to micro firms, especially if time poor and resource tight leaders have to wear many departmental hats in their day job.

This could leave the door open to underinsurance – for example, if a company operating from a leader’s home believes home insurance alone is sufficient to cover business activities.

Mark Plews, underwriting director at Markel UK, agreed that there has been “a blurring of the lines” between personal and commercial covers for this demographic, especially where commercial policies can increasingly be bought online – today’s standard buying route for personal products.

He added that commercial policies and claims are typically more complicated compared to digital driven personal lines, where risks are similar, service is often online and there is greater public understanding of what customers are buying.

Ellie Jackson, sales development manager at broker Robert Gerrard, concurred that micro companies “often do not understand” commercial policies, leading them to “shop every year rather than staying loyal to a good insurer [and] policy” or only obtaining “minimum levels” of cover due to a lack of understanding.

She has also seen the polar opposite, however, with micro firms “being overly cautious because if they had a severe claim, the impact would be very serious and they could go out of business”.

The dangers of micro commercial lines customers treating insurance buying like a personal lines purchaser are very real – but Jackson said there is also an opportunity here.

She argued that even if micro firms do not understand commercial covers, a basic know-how of personal policies can act as a springboard for better understanding, supported by broker delivered education.

Plews advised that trade bodies could provide “access to tailored products” and risk management support that could help with this scenario, in addition to “crucial” education and simplified buying journeys and policy wordings from insurers.

He added that the insurance sector had to bridge a potential “trust gap” too. He explained: “If cover has not been bought properly [in the past], it could [create] a vicious cycle where businesses feel they do not get a good experience from buying insurance, when the reality may be they have bought the wrong product or level of cover.”

With the government’s data showing a 14% uptick in the number of UK micro businesses between 2010 and 2024, there is a clear need for better tailoring insurance buying journeys for this demographic.

Plews concluded: “The industry still has work to do to segment SMEs by trade, risk type or behaviour, which will help customers purchase the cover they need.”