- Three in five small businesses have seen their insurance premiums rise in the last year
- Three in ten say they find it hard to understand what their insurance covers
- One in six (16%) who have renewed or switched their policy in the last year say that their cover has been restricted.
Small firms are encountering widespread problems in their dealings with the insurance market, amid rising premium costs, a new report has found.
FSB’s new publication, Paying a premium? Reforming the insurance market to work for small firms, looks into the price of insurance and whether the products on offer are suitable for small business customers.
The findings expose concerns about whether the insurance market is performing adequately for small firms and self-employed people.
With high inflation putting general pressure on small firms’ bottom lines, the report’s finding that a clear majority (60%) have seen their insurance premiums rise in the last year is an illustration of the cost squeeze facing small businesses, who cannot in most cases operate without various forms of cover.
Over half (52%) of those whose premium costs have risen say that the rise is 11 per cent or greater, while some individual businesses have seen cost rises far in excess of that – particularly following a claim.
The pandemic brought many underlying problems with insurance into sharp relief, as small firms had to fight hard for their business interruption insurance to be honoured, leading to significant uncertainty and worry at a time when they were already fighting to survive.
Other types of insurance, particularly professional indemnity insurance (PII) – which is very often a trading requirement for firms in areas such as accounting or architecture, among others – have seen their markets harden, restricting access to cover and the protection afforded to customers in the wake of COVID-19.
The report includes numerous recommendations for regulators, insurers, and the Government on how to resolve or improve many of the difficulties small firms face around insurance, including:
- The Government should work together with insurers and the Financial Conduct Authority (FCA) as the regulator to agree specific conditions for forms of Government support that should not be taken into account when calculating business interruption insurance claims.
- The Financial Conduct Authority should be explicitly required to consider intervening in a market if it becomes clear that there is a segment/sector of businesses that are unable to obtain insurance.
- The Government should convene discussion with relevant sector-specific regulators and professional associations, to ensure that PII requirements that are imposed as a condition of being able to practise are assessed so they do not disadvantage small businesses. The FCA should carry out a market study of PII, given recent price increases and market hardening.
- The Government should use the Procurement Bill to remove barriers for SMEs in accessing public procurement opportunities. This should include commitments not to impose unlimited liability for public contracts, to share risk reasonably, and to ensure that both PII and public liability insurance requirements in public contracts are proportionate to the size of the contract.
FSB National Chair Martin McTague said: “Cover for risks of all kinds – from fire to flood to less tangible dangers – is vital to small businesses’ continued ability to trade, but our report indicates that there are problems lurking under the surface which, if left unaddressed, could further hamper small firms’ ability to compete on an equal footing.
“Rising cover prices leave firms caught between a rock and a hard place, forced to pass on higher costs to customers, or to cut back on investment and expansion – or even to risk opting for a lower level of cover, which may leave them painfully exposed if the worst should happen.
“Long, complex contracts present difficulties to smaller businesses without a whole department dedicated to deciphering legalese, and runs the risk of small business customers believing they have purchased adequate policies, when in fact they have not.
“Meanwhile, procurement processes which mandate unnecessarily high levels of insurance for relatively small contracts put them out of the reach of small businesses, once again leaving them on an uneven playing field.
“Our recommendations, taken as a whole, will help to make insurance easier and more cost-effective for small businesses to access, allowing them to be sure that, by paying for a premium, they are getting a premium product in return, one suited to their business’s particular needs.”
- Paying a premium? Reforming the insurance market to work for small firms - FSB report, July 2022
- FSB surveyed 819 small business owners over January 2022, and carried out video focus groups and interviews over January and February. Findings were weighted to make them representative for FSB's membership.
As the UK’s largest business support group, FSB is the voice of the UK’s small businesses and the self-employed. Established over 40 years ago to help its members succeed in business, FSB is a non-profit making and non-party political organisation that’s led by its members, for its members. As the UK’s leading business campaigner, FSB is focused on delivering change which supports smaller businesses to grow and succeed.
FSB offers members a wide range of vital business services, including access to finance, business banking, legal advice and support along with a powerful voice in Government. Each year FSB also runs the UK’s Celebrating Small Business Awards. More information is available at www.fsb.org.uk. You can follow us on twitter @fsb_policy and on Instagram @fsb_uk.