Despite a substantial rise in the number of companies in the SME community, brokers face strong competition from insurers entering the market direct, says Defaqto
There are over 4 million businesses in the UK - a number that has increased by over 300,000 in recent years. Almost all of these firms (99.2%) are officially classed as small or medium-sized (less 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 small businesses is therefore significant.
At present the majority of businesses buy their insurance through a broker or bank - most of which sell own-branded commercial policies to their customers. Perhaps not surprisingly, the direct writers now have their eyes firmly fixed on this market, a move which seems to be welcomed by customers.
A report published in May by Datamonitor, entitled Targeting SMEs in UK General Insurance 2005, shows that around 60% of small and medium-sized companies surveyed would consider buying commercial insurance direct.
There is a relatively small number of major insurers operating in this market, although a plethora of broker schemes is 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.
Most also offer a separate small combined package to mop up the more complex business sectors, such as manufacturing, wholesaling and miscellaneous trades, as well as those with higher turnovers or more unusual insurance needs.
In the tables, Defaqto looked at the covers provided within commercial combined, office and retailer policies.
Surprisingly they found a wide variation between products, even with what are considered standard covers. In some cases, these differences are due to the various insurers targeting different sizes of customers.
Most commercial combined packages provide cover for the buildings as standard, while under the office and shop policies this cover is usually optional. This is presumably because most shops and offices are rented, while the more complex risks own their own properties. Most policies provide all risks or accidental damage cover as standard.
Cover for fixed glass and sanitaryware is usually standard with no sum insured limit, or is included within the overall property sums insured.
Public and employers' liability limits are pretty much standardised at £2m and £10m respectively under the shops and offices covers, pushing those customers who require more than this down the combined package route, where some insurers allow the selection of higher limits.
The data highlights a drift towards higher excesses in recent years, with standard policy-wide excesses typically now around £250.
For those businesses that depend on computing as a core part of their activity, a combined policy is likely to be more appropriate, as 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.
Some companies such as NIG and R&SA include further computer-related features as standard, such as cover for the cost of refilling computer room gas fire-suppression systems following accidental discharge.
In choosing a property insurance policy for commercial clients there are a few other issues that brokers may need to take 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 aspects of the 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 at least every couple of years to ensure they remain adequate.
The commercial packages market is likely to be a hotly contested area in the next few years. There are plenty of products available for brokers to ensure their customers are fully covered, but 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.