Supporting small and medium-sized enterprises through challenging times
Insurance has a key role to play in helping small and medium-sized enterprises (SMEs) through tougher times. We explore the ways in which insurance companies and brokers can support their small business customers.
Whilst the biggest threats remain inflation, cost of living and the state of the UK economy, the key concerns across SMEs on a day-to-day basis are high energy bills, competition and late payment /unpaid invoices.
It’s certainly far from an easy trading landscape for SMEs with 75% saying the cost-of-living crisis is having a negative impact on their business. The rate of inflation may have fallen to the Bank of England’s 2% target but this doesn’t mean that prices will fall and so businesses and consumers continue to feel the squeeze.
Interest rates
Interest rates are also significantly higher than pre-pandemic levels. This can delay growth plans and make it more expensive to refinance debt. We found that 49% of respondents believe their business will stay the same in the coming year, 18% believe it will shrink and 1% believe they will stop trading.
Just how tough conditions are can be seen in the corporate insolvency figures. Figures from The Insolvency Service show that 1,769 registered companies went under in January 2024, 5% more than the same month in 2023 and higher than pre-pandemic numbers (2). Subsequently, the Centre for Economics and Business Research predicts 33,000 corporate insolvencies in 2024 – 75% up on pre-pandemic levels (3).
How can the insurance industry support SMEs?
The insurance industry has an important role to play in supporting SMEs during these challenging times. Faced with financial pressures and trading uncertainty, it’s more important than ever to have the right insurance.
If an SME is underinsured, a loss could easily become a financial burden to the business, potentially even forcing it to cease trading.
By providing advice around the most appropriate ways to protect the business, whether that’s sourcing insurance or advising on risk management strategies, brokers can add true value to their SME customers.
Underinsurance education
A prime example of this is policyholders using market value rather than rebuild value for their property sum insured, which can lead to businesses being underinsured if the market dips or doesn't reflect the actual cost to rebuild. Our survey shows that 39% of businesses are using market value (an increase of 5% on last year). Explaining the difference between the two and encouraging regular professionally qualified valuations, especially where construction is complex or includes specialist materials, can ensure customers avoid this pitfall.
Our survey shows that 80% of SMEs have kept their indemnity period the same, but current market trends such as extended delays in supply chains, lack of skilled workers, and the more recent challenges with the shipping channels, will also lengthen recovery times.
Liability limits assessment
A regular review of limits of liability is prudent across all covers too. This can keep the business protected but could also identify any gaps in cover. Business operating models especially in the SME sector continually evolve.
The pandemic highlighted just how quickly they can pivot, with examples including restaurants launching food delivery services and gyms offering online fitness classes. Our survey shows there’s no sign of this adaptability going away but these shifts can mean different types of insurance are required to reflect changing liabilities.
Identifying new risks
New risks can emerge too. Thirty years ago, few businesses used the internet; today most are reliant on it, making computer insurance a consideration.
Tough economic times can increase the risk of legal challenges so it’s a good time to assess any liabilities to third parties. Taking out cover for these legal risks is prudent, and something we include for a number of our SME products.
Cover comprehension
As well as reviewing cover and business activities, the insurance industry can help customers by ensuring they understand exactly what protection they have. Insurance is full of jargon and this can leave business owners unaware of the cover they have, even in times when it could help them get back on their feet.
Cutting through the jargon by using clear definitions and clarifying policy wordings and conditions supports clients but also builds trust in the industry. Ensuring cover meets needs is also essential under Consumer Duty.
Building resilience
The insurance industry can also help the SME sector build resilience. By understanding the risks they face, SME business owners can take appropriate steps to mitigate them.
Risk management can help a business run more smoothly and reduce the risk and potential disruption of a loss. Having a risk assessment whenever operations change ensures that any possible issues are identified before they cause a problem.
Business continuity plans are a key part of this too. Knowing what to do in a crisis helps an organisation respond quickly and effectively, enabling the business to bounce back faster. Take a look at our article on the benefits of buiness continuity plans and how to create them.
SME support from Allianz Commercial
At Allianz, we recognise the challenges SMEs are facing and our proposition has evolved to give these customers the additional support they need during these testing times.
Underinsurance features heavily, especially as it can be even more damaging than the initial loss. As well as our Underinsurance Hub, we regularly issue podcasts, webinars and articles to raise awareness, read our latest article – Underinsurance - a continuing issue. Another key initiative is the inclusion of legal cover as standard in our SME products. Without the luxury of an in-house legal team, the law can be tricky to navigate. Our in-house team of legal professionals can advise SME customers on the correct actions to take so they can operate confidently without costly solicitors’ fees. We also offer access to over 100 free legal templates, helping them to ensure that their documents are compliant and fit for purpose - from HR policies to supplier contracts. Our specialist tax helpline also provides advice on any tax matter affecting their business.
Support is also available for SMEs experiencing claims. Wherever possible, we aim to resolve claims at first contact but we also recognise that some claims are more complex. Therefore, we offer kick-start payments of up to 50% of the claim reserve value for any commercial property loss between £10,000 and £100,000*. This supports SME cash flow, helping them get back to business quickly.
We’re constantly looking for ways to support our customers, responding to market trends or leaning into the latest technology to ensure they can focus on their business. This has seen us introduce proactive surge messages for brokers, with videos and guidance on how to protect property and vehicles from extreme weather. Similarly, when the pandemic started to stretch budgets, we removed service charges and now offer instalments at 0% for all regulated customers, as part of our affordability review.
Working closely with your clients to understand the risks they face and help them access the right insurance cover and risk mitigation strategies ensures they’re prepared for even the toughest conditions.
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*subject to confirmation of cover.
- Allianz commissioned OnePoll survey to 500 UK SME decision makers, conducted 1-6 February, 2024
- Commentary - Monthly Insolvency Statistics January 2024 - GOV.UK (www.gov.uk)
- Cebr raises its forecasts for corporate insolvencies in 2024 from 28,000 to 33,000 - CEBR