Customers have a range of different needs, whether as individuals or as businesses. For small and medium sized enterprises (SMEs), those needs are especially varied, spanning property, liability, cyber, business interruption, as well as sector specific risks. That diversity is why getting insurance right matters.
SMEs make up 99% of all UK businesses and provide around 60% of private sector employment; so when they are uninsured or underinsured, the impact can be felt across local economies and communities.
The ABI is currently conducting a study into SME uninsurance and underinsurance to build a robust evidence base and develop solutions that fill gaps in cover. The work includes a nationally representative survey (1,000+ SME decisionmakers) and qualitative engagement through focus groups and workshops with experts and small business representatives. The study is aimed at understanding how SMEs approach insurance and manage risk. The ABI will be reporting on their study in January, ahead of The ABI Annual Conference taking place on the 3rd February. This study follows the ABI’s report from January 2025 on the protection gap in cyber, launched at its inaugural Cyber Conference. This made a call for clearer language, stronger broker guidance, and awareness raising to improve take up and adequacy of cover.
The impact of coverage gaps on small businesses
Recent flooding linked to Storm Claudia has highlighted how coverage gaps translate into real world consequences. In Monmouthshire, emergency funding and grant schemes had to be activated to support businesses with immediate recovery costs due to some businesses not having flood cover or having limits that fell short of actual losses. Community groups including 'Go Fund Me' pages were also set up to help affected traders and organisations reopen. It is not yet known if some SME's will ever recover.
There can be several reasons for the issue to occur;
- Failure to account for claims inflation: Rapid increases in building costs, materials, labour and supply chain delays mean historical limits and indemnity periods can be too low, even if they were considered adequate at the time of renewal.
- Cost saving during financial strain: In tough trading conditions, some SMEs limit cover or drop policies altogether.
- Undertaking work outside policy scope: Diversifying services or changing business models can inadvertently leave activities uncovered unless the existing policies are updated.
- Failures in risk identification: This is especially relevant in risks such as cyber, as covered in the ABI's January 2025 report. Many SMEs still believe they are “too small” to be targeted so uptake of cyber cover remains low. This is despite widespread reporting on breaches.
- Lack of insurance expertise: Knowledge gaps around exposures can result in missing or inadequate cover, leaving businesses unprotected against some claims.
How insurers and brokers can close the SME protection gap
The good news is that insurers are uniquely positioned to lead the way in solving the problem. This will be explored further in the ABI's report, but a few simple solutions the industry can focus on now to make a tangible difference include;
- Making coverage clarity a priority: Insurers should simplify policy wording and provide clear, accessible summaries. Encourage brokers to walk SMEs through sums insured, indemnity periods, specific perils (including flood), extensions, exclusions, and condition. Offering valuation tools or index-linking options can help SMEs keep pace with inflation.
- Equip brokers to advise proactively: Broker engagement is critical. Insurers can support this by creating training resources and sector-specific guides. Cyber cover, in particular, needs plain language explanations and practical examples to overcome misconceptions.
- Promote regular reviews: Introduce automated renewal prompts and mid-term check-ins to discuss business changes that might require coverage updates.
- Counter false economies with education: Develop campaigns that illustrate the real cost of underinsurance versus the perceived savings of cutting cover. Case studies, such as SME's facing closure after floods, can make the risk tangible and drive informed decisions.
- Share insight on emerging risks: Insurers should publish regular risk bulletins covering regulatory changes, new threats, and climate impacts. Position these as practical guides, not technical papers, to help SMEs adapt quickly.
- Claims preparation: Provide SMEs with claims preparation checklists, notification tools, and guidance on evidence gathering. Insurers can also streamline claims processes and communicate conditions clearly to reduce disputes and delays.
SME's need to be encouraged to know what they're covered for, and what they are not. They need to review their policies regularly and treat insurance as a strategic resilience tool, not just a cost. The difference between an interruption and a closure often comes down to this simple message.
The ABI’s current study is an important step toward an evidence-based solution set, and the issue will be discussed further during one of the breakout sessions at The ABI Annual Conference on 3rd February.