EXCLUSIVE: Business Interruption and insurance brokers – Where has COVID left UK SMEs?

The COVID-19 lockdowns were brutal on UK small businesses. A report from Simply Business found that the pandemic will cost SMEs an estimated £126.6 billion. Though the government and big insurers attempted to cushion this blow to the economy, it was not enough to mitigate the loss. Small businesses, which account for 99.9% of all businesses in the UK, will spend the majority of 2022 rebuilding profit. With this backdrop, a change in action and language undercuts the way insurance will be done in the future.

Issues arose in early 2020 when lockdown rules were first implemented. SMEs demanded the government to close businesses, and declare the Coronavirus a notifiable illness. The incentive was that businesses would be able to claim cover under business interruption insurance. However, big insurers like AXA and Aviva warned that they may not be able to provide cover, as they spent the last decade redrafting policies to exclude illnesses that were not specifically named.

In January 2021, almost a year later, the UK Supreme court ruled in favour of policyholders, agreeing that the wording in insurance policies was unclear, an ambiguity that could lead to the omission of potential claims. Even with this ruling, many SMEs remain out of pocket.

Government support packages did provide agency to a minority of small businesses during the lockdowns, but not all were satisfied. The Simply Business report found that 81% of self-employed people did not feel supported by the government, and over 2 million SMEs were not able to access support at all.

With this set precedent, insurers have been quick to adapt to the unpredictable climate and the needs of small business owners.

Last week, the challenger bank Cashplus announced its partnership with Superscript, offering insurance to SMEs for around £5/a month. Superscript, an insurtech specialising in SME business insurance, operates on a subscription basis and guidance to customers on how to navigate ambiguous insurance jargon. Their policy on business interruption covers both physical property damage and computer damage.

This consideration for technological risk is timely, given the increase in online entrepreneurship. Almost 20,000 tech startups were launched in the UK in 2020. With these digitally-bound businesses, comes the threat of more sophisticated cybercrime. Market Direct found among the 1000 self-employed and SME owners they surveyed, that 51% had been the victim of a cyber security breach, two-thirds of which claimed the breach cost them up to £5,000.

Temporal pressures have also accelerated innovations in calculating risk. Niche insurer Hiscox recently partnered with catastrophe risk company RMS to expand the use of RMS’s Location Intelligence technology. The tool provides modelling data with high-resolution, location-level hazard, risk, and loss metrics. This enables customers to get insurance quotes in real-time. Such a tool has proved successful for Hiscox’s reinsurer Floodplus when calculating risk. The company managed to produce 20,000 quotes a week using the technology.

Insurtech Nimbla is tapping into the crisis in unpaid customer invoices. In a recent study, Barclays found that three in five SMEs are currently waiting on money tied up in cash flow. Nimbla specialises in trade credit insurance which allows SMEs to insure invoices issued to customers. If a customer is unable to pay that invoice, the insurance protects them from procuring any losses.

CEO of Nimbla, Fleming Bengsten, told Forbes, “the credit insurance market hasn’t changed much in 50 years so we are dragging it into the 21st century […] We want to make sure that even the smallest businesses can access it, as well as the large corporates that currently buy cover.”

Insurers are not the only ones in need of modernisation. According to a report by the Chartered Insurance Institute (CII), insurance brokers spend 56% of their time on administration rather than actual client service.

The report concludes that the 10-year trajectory in broker software will emphasize the broker-insurer interchange, where the easy flow of data from client to broker to insurer will become the norm. Challenger broker hubb is already leading this trend. With its recent acquisition of insurance technology provider Digital Fineprint (DFP), the broker streamlines administration using AI, clearing out more space for broker-client interaction.

COO of hubb, Edward Halsey, spoke to FF News about their usage-based approach to broking. “There are tools available for intelligent document automation, where you can just give in your existing schedule or give in your broker presentation and we can read that automatically and ask about the questions that deliver high value to you. The things that matter, not administrative things, but things that resonate with you, things that are going to identify risk.”

hubb recently surveyed over 1,000 senior decision-makers of UK SMEs and found that more than 80% want their brokers to disclose all potential commissions and conflicts of interest in part of being radically transparent.

“To re-win the trust of the customer base, we need to show them radical transparency,” Halsey said. “We need to be transparent about fees, we need to be transparent about what we’re doing on their behalf. They need to be able to see everything, including every single quote, positive or negative, that comes across. No more selecting what we show them, you see every quote and every response we receive. We think that is fundamentally the start of how we can rebuild trust with buyers.”

COVID-19 has exacerbated the demand for specialised, customer-focused business insurance. With over a million small businesses without the essential insurance policies required to survive in the current economy, insurers and brokers must provide cover for all possible risks, while also communicating their importance to SMEs in a direct and comprehensive way.