SMEs Are Facing An Increasing Risk Of Underinsurance

SMEs Are Facing An Increasing Risk Of Underinsurance

According to research conducted by Aviva, small to medium-sized enterprises (SMEs) are facing significant levels of uninsured risk as a result of the challenging economic environment. The survey carried out back in September of this year, revealed that:

  • 32% of businesses do not take inflation or supply chain issues into consideration when reviewing how much to insure their business for
  • 10% of SMEs – more than half a million businesses – would not survive if they were expected to pay up to £10,000 towards a claim that was not fully covered by insurance
  • 19% of businesses have not reviewed their business interruption (BI) cover within the last two years
  • 31% of businesses do not have Employers Liability insurance, which is a legal requirement.

Jason Chambers, Head of Underwriting Automation for Aviva, stated that businesses have faced a “tumultuous couple of years” in the wake of challenges posed by the Coronavirus pandemic, the increased cost of living, and the ongoing war in Ukraine. Inflation, supply chain disruption and labour shortages have been the most common factors, not just for creating challenging business conditions, but also putting businesses at increased risk of becoming underinsured. In addition, higher inflation means that the level of insurance cover protecting buildings and physical assets - such as stock or machinery - is likely to need updating to keep up with increasing replacement costs.

With all these challenges, it is understandable that SMEs are paying close attention to their expenditures. However, Chambers warns that “cutting corners” on insurance is likely to expose them to considerable risk. Based on Aviva’s SME modelled data (excluding Fleet), it is estimated that 50% of UK businesses are underinsured, whilst 45% of policies with buildings have at least one premise suspected to be underinsured by 20%. If the current economic situation continues, more businesses may find themselves underinsured or without the correct business interruption cover, which will have a greater impact on a business’ ability to stay afloat should a claim arise.

The results of this research highlight that brokers will have a key role to play in ensuring that customers are being provided with the correct levels of cover, particularly with the implementation of the Consumer Duty next year, which has been introduced to reduce the risks of foreseeable harm for consumers.

91% of businesses are “confident they have the right cover in place”. The contrast between this and the above underinsured statistic emphasises the importance for SMEs to be in regular, effective communication with their brokers to ensure their confidence is not misplaced and that they are protected from harm.

If you would like more information about this, please contact your Compliance Consultant or get in touch via email at helpdesk@rwagroup.co.uk or call 01604 709509.

About the author

Jessica joined RWA in 2018, having graduated with a First Class Honours degree in Film Studies. Her role as a content designer involves developing new and engaging e-learning modules as well as assisting in the creation of articles for Insight. 

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