More US small business owners say they understand their insurance policies, yet most remain underinsured, according to Hiscox’s 2025 Underinsurance in Small Business Report.
Despite a 9% increase in policy comprehension over two years, 77% of small businesses lack adequate coverage, a rise of more than 2% from 2023.
The Hiscox study, conducted between June 18 and June 30, 2025, surveyed 2,000 small business owners in the United States and 4,250 internationally. The report found a persistent misunderstanding of coverage terms and policy limits, suggesting that awareness of business insurance concepts has not translated into sufficient protection.
Understanding of general liability coverage showed some improvement, yet 74% of respondents still could not correctly describe what a general liability policy covers. Misunderstanding of professional liability coverage stood at 83%, while 77% of respondents misinterpreted what a business owner’s policy includes. Many business owners also believed their policies would cover situations outside their scope, such as property damage from a fire or flood under general liability, or slip-and-fall incidents under professional liability insurance.
Mary Boyd, CEO of Hiscox USA, said that while small business owners are experts in their industries, insurance language can often be confusing. She said this misunderstanding leaves many firms at financial and legal risk when losses occur outside policy limits.
“The more knowledge they have about the risks they face and how specific policies match up, the safer their business,” Boyd added. “As an industry, we must continue to help business owners understand the differences between policies, omit alienating jargon, and encourage them to let us know when their business has changed.”
Cyber insurance was cited as a growing area of concern. The report found that 75% of small businesses are exposed to cyber risks due to online activity, but 39% of those without cyber insurance believe they do not need it, and 30% think their businesses are too small to be targeted.
The Hiscox data also indicated that US small businesses are generally performing better financially. Sixty-two per cent (62%) reported revenue growth over the past two years, up from 47% in 2023. However, owners remain cautious about economic pressures, with 51% naming inflation and rising costs as their primary concern, followed by potential economic downturns (44%) and theft or property damage (32%).
To stay adequately insured, Hiscox advises business owners to research their industry’s insurance needs before buying or renewing a policy, provide accurate information to brokers or agents, and review their coverage regularly, particularly when business size or operations change by 20% or more.
A separate report released in August, the J.D. Power 2025 US Small Commercial Insurance Study, supports Hiscox’s findings on the importance of communication. It found that only 55% of small business customers said they “definitely will” renew with their insurer, six points lower than in 2024. The study noted that customer satisfaction remains consistent when policyholders understand premium increases, suggesting that clear communication can help maintain trust even when costs rise.
Both reports suggest that small business insurance in the US is hindered more by misunderstanding than by lack of access.
