The cost of insurance should not be excluded from the price of doing business, says board director

Many small businesses are reporting an increase in insurance premiums with no option but to “swallow the costs”, according to Federation of Small Businesses (FSB) board director and policy champion for insurance Gary Lovatt.

In a report – entitled Paying a premium? Reforming the insurance market to work for small firms – released today (19 July 2022), Lovatt said that small and micro businesses were more likely to be threatened by the “financial squeeze” of the Covid-19 pandemic and cost-of-living crisis.

He noted: “The lack of availability of affordable and adequate insurance cover has been raised by small businesses as a significant barrier to their growth and innovation.

“Insurance is often missed from the cost of doing business debate, but it shouldn’t be.

“Alongside increasing insurance premiums, small firms continue to deal with surging input price inflation, rising energy and fuel costs, the start of emergency post-Covid-19 debt repayments, tax increases and labour shortages.”

Proportionate pricing

FSB’s report suggested that small businesses required support to access affordable insurance, with any mandatory policies priced proportionately.

“A one-size-fits-all approach risks small businesses overpaying for insurance in circumstances where many are already struggling, or policies being inappropriate with a possible impact on future claims,” added Lovatt.

The FSB’s report showed that 16% of small businesses said their insurance premiums had increased by more than 25% in the last 12 months. A further 44% of small firms had seen their premiums increase by 10% or less, with another 37% of these firms who reported an increase in premiums between 11% and 25%.

The report also noted that 24% of small businesses had assessed or reduced their expenditure on insurance as a result of premium increases.

This was due to the nature of small businesses, which are less likely to have financial reserves in comparison to larger businesses and were therefore less able to absorb increased costs.

A further 12% of small firms said that premium increases had left them unable to focus on business growth, with 11% stating that they had reduced their overall insurance cover on assets or outgoings as a result.

The FSB’s stats were based on a survey of 819 small businesses conducted between 10-26 January 2022, as well as on sector-specific focus groups and interviews conducted around the experience of claiming on and obtaining insurance policies for their businesses.