Small firms call for action as insurance premiums rise and coverage shrinks

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 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 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.

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.”