Global insurer Hiscox has released its first Global Protection Gap Report, revealing that 74% of small and medium-sized enterprises (SMEs) worldwide remain underinsured despite growing awareness of emerging risks.
Based on responses from 6,250 business owners across the UK, US, France, Germany, Spain and Portugal, the study found that while 92% worry about potential threats such as property damage (34%), cyberattacks (33%) and workplace injuries (32%), many lack adequate protection.
The report shows that 55% of SMEs may have a protection gap due to missing essential cover such as professional indemnity, public liability, property or employers’ liability. Hiscox said nearly two-thirds (65%) of respondents could not accurately describe public liability insurance, rising to 77% for cyber and 80% for professional indemnity cover. Around a third had not reviewed their policies in the last three years, potentially leaving them exposed to new risks as their operations expand.
Joanne Musselle, Hiscox’s group chief underwriting officer, said the aim of the report is to help small businesses understand their exposures and make informed decisions about risk management and insurance needs. She noted that many SMEs delay obtaining cover until turning a profit, with 24% admitting they did not buy insurance until then.
“The lack of understanding among SMEs as to what business insurance protects them against is leaving too many businesses potentially vulnerable to avoidable financial and operational shocks, said Musselle. “Professional indemnity is the most commonly misunderstood among small business owners, and yet it is critical to protecting your business if you are sued for negligently performing your services – even if you haven’t made a mistake.”
The issue of underinsurance is widespread across the SME sector. A Startups Magazine report on January found that around 80% of UK SMEs are underinsured, often due to rising premiums, limited resources, and a lack of understanding of complex policy terms. It noted that cost-saving decisions to reduce cover can lead to severe financial and reputational consequences when disruptions occur.
Other insurers have introduced measures to address the gap. Aviva recently extended its business interruption indemnity period to 24 months at no extra cost for new and renewed SME policies, following findings that many businesses underestimate recovery times after major incidents. Premium Credit also reported that one in five SMEs acknowledged being underinsured in the past year, while Allianz UK warned that a third of SMEs fail to adjust their cover during peak trading seasons despite increased operational demands.
“Small business owners invest years of hard work, resources and passion into building their dream business,” Musselle said. “They wear lots of different hats while they’re doing it; and not everyone has the capacity to be a risk manager as well.”
Are SMEs doing enough to protect their operations from unexpected risks? Share your thoughts in the comments.
