Briefing: Small business optimism rising, but coverage conversations not without challenges

By Jon Guy

Small businesses are starting to see silver linings in the economic clouds, but the threat of future storms will ensure that brokers will have their hands full supporting their clients.

The latest UK Small Business Index (SBI) from the Federation of Small Businesses (FSB), published yesterday (2 May 2023), rose to -2.8 in the first three months of the 2023, up 43 points from the final quarter of 2022 when it sat at -45.8.

The index measures confidence in the economy and the result highlights that confidence among small businesses has recovered strongly in 2023, with wholesale and retail, accommodation and food, manufacturing and information and communication all seeing major increases.

Despite the uptick, however, these sectors still remain in negative territory. The professional, scientific and technical sector was the only major sector tracked by FSB that ended up in positive territory, with a confidence reading of 14.9 points.

Falling sales were an issue for many small firms over the first quarter. Two in five small businesses said their revenues fell over the course of the first three months of this year (41%), compared with one in three who said they had seen an increase in sales (34%).

The revenue outlook for the next quarter was viewed with more optimism, however, with two in five small businesses (39%) expecting to see their sales rise, against one in four (26%) bracing for a drop.

Turning a corner?

Martin McTague, FSB’s national chair, said: “Our latest SBI data shows that small firms may be about to turn the corner and rebound after the pandemic and the energy crisis, with confidence recovering alongside improved optimism for Q2.

“However, there are still plenty of dark clouds on the horizon that could dampen small business recovery. The prospect of further interest rate rises is causing significant disquiet, at the same time that costs remain at serious highs.”

What is clear is that risks will persist for small businesses. While there is more optimism, cashflow is still an issue – and with it comes a reluctance to spend anything more than is necessary.

For brokers the challenge remains to convince clients to commit more of their budget to the management and mitigation of risk as exposures increase.

A different approach might be needed and that may well go hand in hand with a requirement for a new type of product that can deliver a more bespoke coverage for small businesses.

Individual premium levels might require a new type of facility that can deliver such a cover alongside the  scale to make it worthwhile for all parts of the insurance chain.