Recent research from the ABI highlighted that the SME protection gap remains ever present. Large numbers of SMEs are either uninsured or underinsured, putting them at risk of failure. This lack of insurance for key risks or being underinsured is then made worse if businesses do not review insurance needs and levels of cover regularly or when circumstances change.
The resilience that insurance can provide is even more important against a backdrop of rising interest rates and inflation, combined with ongoing cost-of-living challenges, exacerbated by the Middle East conflict and resulting economic uncertainty.
The ABI survey also found that a significant share of businesses are operating without compulsory insurance, let alone insurance specific to their business. Echoing this, we found that more than two out of five SMEs believe their level of underinsurance will increase in the year ahead and a further three in ten believe it will stay the same. This chimes with the views of both brokers and insurers, following conversations at the BIBA conference in May.
Even when insurance is put in place, some businesses opt to cancel cover, with over a fifth (23%) of SMEs most likely to cancel key man cover, followed by D&O cover and specialist cover. This is counter-intuitive and suggests a need for better education. The ABI research found that while SME business owners believed they understood insurance, they were often wrong, with a knowledge gap between understanding the basics and really understanding the products available.
Where there is underinsurance, the ABI has identified three key drivers:
- Lack of product understanding
- Deliberate decisions not to insure the full risk and
- Not updating cover.
Against this backdrop it’s not surprising to find two in five SMEs admitting that, in the last five years they had been unable to claim for damage to property or equipment either because they were not insured or their insurance was inadequate. A quarter of those who could not claim faced damage of over £3,000 – enough to cause serious cashflow challenges, and potentially worse consequences, to a small business.
On the flip side, there were signs that some SMEs were looking to increase cover in the coming year, with cyber and employers’ liability the most likely to be increased. Cyber insurance, in particular, has come to the fore with high profile targets facing huge financial losses. Many SMEs would not be able to survive after a cyberattack. Speaking with brokers, cyber insurers and with BIBA, it is in everyone’s interests to have more businesses adequately covered by cyber insurance.
With a myriad of competing priorities SMEs will inevitably face financial challenges, with economic uncertainty looking set to continue, further fuelled by the impact of existing or future geo-politics. Fortunately, many are realising that credit is a sensible method of paying for insurance and that there are a range of options to help them access that credit.
Our annual survey, based on national research among 1,000 SMEs1, revealed that SMEs are using credit to fund insurance, with 90% of them saying they had done so to pay for one or more policies. The demand for credit from SMEs can be seen across all types of insurance, with vehicle, property and employer liability insurance topping the table.
The most popular type of credit used was
- Credit cards, followed by
- Insurer-offered finance
- Business loans and
- Premium finance.
SMEs need to carefully consider the type of credit they choose. For some, a business loan or credit card may be the right solution, while for others it could be a dedicated way of paying for insurance, spread across monthly payments. They are facing challenges across the spectrum, but the risk of being uninsured or underinsured, comes at a cost which many are simply not equipped to bear.
Sources
- Independent research conducted by PureProfile among 1,000 SME owners and managers between March 13th and 25th 2026