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Business insurance: SME cover can be improved, IoD says

A recent report shows that SMEs are missing out on the chance to use insurance to expand, and are buying the wrong cover. How can you get the most out of your business insurance?

Business leaders must stop seeing insurance as a ‘grudge purchase’ and start using it to enable them to take risks as they grow their business, a recent report published by the IoD (Institute of Directors) and Airmic (the Association for Risk and Insurance Management Professionals) argues.

While some of the material is focused on large corporates, small to medium sized businesses could learn a lot from the Critical Business Insurance report. In short, the message is that SMEs should not just view insurance as a necessary precaution, but see it as a way to help expand their business.

Simon Walker, Director General at the IoD, said: “The right business insurance acts as a strategic enabler, underpinning companies’ ambitions and allowing them to seize new opportunities.” He advised scrutiny to ensure that cover is ‘fit for purpose’ and good value.

But rushing to buy a policy may do more harm than good.

John Hurrell, chief executive of Airmic, stressed the importance of making sure businesses buy the right insurance policy: “All too often companies assume that policies will pay out when needed. While most policies do indeed pay out, such complacency can be costly. When a large risk materialises that is uninsured, or where a claim against it is delayed, unpaid or only partially paid, the consequences can be disastrous.”

Cheap business insurance

False economy is common in insurance: unlike other commoditised services (like energy, for example), not all insurance policies are created equal. The report advised negotiating business-critical insurance based on its efficacy – its ‘fitness for purpose’ – and not on price alone.

This is especially crucial for SMEs that might not have the resources to survive a big loss. As Hurrell pointed out, the Financial Conduct Authority (FCA) recently pointed out “a gap between the claims service received and the SMEs’ expectations” with claims payouts not covering an SME’s loss in “a number of cases”.

Hurrell had some simple advice: “Remember, having an insurance policy that will pay out as and when you expect it to is the most important criterion.”

He had another simple strategy for ensuring the tight cover: “Few companies have an in-house insurance expert so it is also essential that senior decision-makers have access to professional advice before authorising the purchase of insurance cover.”

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