According to the research and consulting company, nearly 80% of small and medium sized enterprises (SME) in the UK are extremely concerned about the ongoing cost-of-living crisis, with 78.3%of the responders to the 2022 UK SME Insurance Survey stating that they are concerned to some extent about the ongoing cost-of-living crisis, while 52.0% are either 'very concerned' or 'extremely concerned'. The level of worry is so high that it indicates many businesses may not make it through this difficult period. "The cost-of-living crisis is showing no signs of coming to an end, with the Russia/Ukraine conflict continuing and inflation and energy prices still sky high. On top of rising inflation, consumers are facing higher mortgage rates, which will impact both homeowners and renters as landlords will be likely to raise rents. Therefore, consumers will have less disposable income to spend, which will further impact SMEs," Ben Carey-Evans, Senior Insurance Analyst at GlobalData commented.
Although GlobalData's survey was dedicated exclusively to the UK market, other sources, as ETUI - European Trade Union Institute or Moody's, SMEs from the other European economies are facing the same challenges. The escalating war in Ukraine, skyrocketing gas prices and inflation rates, as well as the increasingly unsustainable cost of living have strong impact on SMEs business sustainability across many European economies. Germany, Spain or Italy are only the most relevant examples mentioned by analysts.
GlobalData notes that the health of the SME insurance market is dependent on the number of SMEs in the country, so if liquidations start to rise then the number and value of insurance contracts will decline. Meanwhile, SMEs that do survive will have to severely reduce their expenses, which may include insurance policies. This will be damaging to commercial insurers in the UK.
"Despite the number of businesses in the country being likely to see a decline, insurers will need to ensure their penetration rates do not drop. However, it will be extremely difficult for them to achieve this while pushing through premium increases, as insurers' own costs will have increased this year. As a result, SMEs will be looking to cut bills. One way they might go about this would be to underinsure in areas where perceived risk is lower," Carey-Evans added.
Insurers may need to focus on maintaining customers, even if that does result in profit declining in the short term. Offering flexible insurance to keep customers on board could be a temporary solution. Payment holidays and flexible payment terms were used during the COVID-19 pandemic; they could be brought back to help businesses through these tough times. This would allow customers to switch certain policies off and on in order to manage exactly what they pay, which for insurers is likely a better solution than losing the customer altogether. This is particularly possible in motor insurance, where pay-per-mile and pay-as-you-drive insurance are becoming more commonplace in the commercial line. It could also be applicable to insurance for contents or equipment. "It will be a tough year for insurers in the SME market, with the level of concern extremely high. Insurers that can stand out by offering innovative products, such as on-demand insurance-or at least communicate well with clients-will be most likely to complete increasingly difficult renewals," Carey-Evans concludes.
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