Direct to the customer

There are more than 4 million businesses in the UK, a number which increased by over 300,000 in recent years and now stands at a record level.

Almost all of these firms (99.2%) are officially classed as "small" or "medium". That is, they have fewer than 50 employees, and of these around 2.8 million are sole traders.

This leaves around 1.3 million businesses with more than one employee, the vast majority of which have a need for commercial insurance. The market for insurance aimed at the small business community is therefore significant.

At present the vast majority of businesses buy their insurance through a broker, or bank - most of which sell their own branded commercial policies to their customers. Perhaps not surprisingly the direct writers now have their eyes firmly fixed on this market - and this move does not appear to be unwelcome to customers.

A report by Datamonitor, Targeting SMEs in UK General Insurance 2005, shows that around 60% of small and medium companies surveyed would consider buying their commercial insurance direct.

Most of the major insurers operate in this market, and there are a number of broker schemes also available. Insurers typically offer a range of trade specific packages aimed at smaller businesses, such as shops and offices, with options to tailor the levels of cover to suit the individual insured.

In the following tables, Defaqto looked at the covers provided within offices and retailers policies. Surprisingly they found a wide variation between products, even with what are considered standard covers.

Accidental damage

Most retailers and office package policies provide cover for contents, glass, goods in transit, frozen food, business interruption, book debts, liabilities, money as standard, while optional covers such as buildings, legal expenses, loss of licence and personal accident can be purchased.

The cover provided is usually on an all risks or accidental damage basis, but there are a number of insurers who provide specified perils cover as standard and will provide all risks/accidental damage cover as an optional extension.

Cover for fixed glass and sanitary-ware is usually standard with no sum insured limit, or is included within the overall property sums insured.

Standard limits for money cover provided under both office and retail policies vary considerably depending on which insurer is used. Other covers where insurers provide differing sum insured limits are employees personal effects, loss of metered water and lock replacement.

Public and employers' liability limits are pretty much standardised at £2m and £10m respectively. However, some insurers allow the selection of higher limits.

Business interruption cover for own premises can be either a set sum insured or a sum insured selected by the insured.

Contents and buildings policy excesses typically range from £100 to £300.

But for subsidence claims for buildings, the general excess is £1,000.

For offices which depend on computing as a core part of their activity, many of these policies offer optional computer equipment cover. Typically, this covers damage to the hardware and loss of stored information, on a breakdown or all risks basis.

They usually include other extras to get computers repaired as quickly as possible following damage or breakdown, loss of income, cover for additional rental costs and for incompatible computer records.

In choosing a property insurance policy for commercial clients there are a few other issues which need to be taken into consideration.

Some insurers allow capital additions to the insured property, typically up to 10% of the insured value, without the need to issue a new policy, although the insured may have to pay an increased premium immediately.

So if the customer is contemplating any expansion or improvement works, these policies should be borne in mind. Index-linking of sums insured is useful, but possibly less so these days given the relatively low inflation climate in recent years. Even so, sums insured should be reviewed every couple of years at the very least, to ensure they are still adequate.

Claims helpline

Claims helplines in today's fast paced commercial world are also an issue when selling a policy. Most insurers will offer a claims helpline service during office hours, but as we all know, claims do not always happen during office hours.

A client should consider choosing a company that offers a 24-hour claims helpline.

Although SME insurance is still regarded as an intermediated form of insurance, and a commercial client would obtain advice from a broker, competition in the form of direct writers is now here and likely to intensify.

It is still early days, so brokers have plenty of time to show their clients that they can add value to the purchase of what, for some at least, is still a complex and daunting product area.