Numbers of SMEs have been rising, thanks in part to those who lost jobs during the recession setting up their own business. This is regarded as an under-insured segment of the market, which presents opportunities for savvy brokers

SMEs account for 99.9% of all private enterprises in the UK. Numbers have increased year on year since 2001, despite the gruelling economic conditions of the last few years.

The UK’s 4.5 million private enterprises have a combined annual turnover of more than £3.053 trillion. The stability and security of these businesses is therefore a vital part of economic recovery, and adequate insurance cover is essential for businesses’ long-term prosperity. The challenge for brokers is to navigate changing risks and complex legislation, and to identify new business opportunities and cases of under-insurance.

The growth in small enterprises despite the economic downturn is partly because of the trend for people who have lost jobs to set
up as sole traders. These new businesses represent a huge market for brokers, and the market is recognised as under-insured.

Since the 2008 recession, business owners have been under greater pressure to cut costs and brokers have found price to be a key concern. Insurers have focused on providing new e-trading facilities, with mixed success: price focus can encourage companies to under-insure, or invalidate policies by providing misinformation.

Brokers fear aggregators’ move into commercial lines, but the experience of the past five years shows that significant inroads have yet to be made.

As more insurers begin to streamline and standardise their policies to enable easier online sales, brokers may start to feel the heat. In the SME market, risk advice is a valuable service brokers can offer that aggregators cannot.

The big stories

Aggregators and e-trading
Aggregators’ success in personal lines has driven brokerages to fear a similar massacre in commercial lines. The new combined packages for SMEs have allowed insurers to grow commercial direct sales, but often at the expense of detailed risk assessment. Savvy brokers have focused less on price and more on bespoke service.

Business interruption
SMEs are more exposed to the effects of business interruption than large corporations with greater capital reserves. Delays, non-payment, health issues, civil unrest or unexpected weather events can strain small businesses to breaking point.

SME fleet business has been patchy in recent years because risk profiles vary widely from customer to customer. Additionally, new regulations like the Corporate Manslaughter Act also had to be taken into account.