The Big Question January/February 2023: How can insurance firms help SMEs amid increased business insolvencies?

Peter Blanc, group chief executive, Aston Lark

There is no shortage of doom and gloom predictions of business insolvencies over the coming year and brokers will be in the frontline.

Not only is inflation increasing sums insured and hence premiums, but insurers have also just concluded one of their toughest reinsurance renewals for many a year and are seeking rate increases across most lines of business.

Why is it always the way that hard insurance markets coincide with tough economic climates?

So, what to do? Well, despite it being deeply unpopular, we have to stick to our guns and make sure that clients are protected – shying away from difficult conversations is never the answer.

That means ensuring that sums insured are adequate and that business interruption limits are sufficient – even if it results in higher premiums.

If the client is determined to save money, then seeking higher levels of risk retention (deductibles) is always available – not buying less cover and hoping for the best.

We should be working with clients to mitigate their risks, which of course will also help when we’re asked to re-market their policies.

In short, now is the time for brokers to earn our stripes by doing everything we can to help clients eliminate risks and provide great value insurance for the remaining risks.

Tanya Giles, head of SME business, Atradius UK 

SMEs in all industries are facing unprecedented challenges at the moment, whether that’s as a result of soaring energy prices, labour shortages, the lasting impact of Covid-19 and Brexit or a combination of these factors.

Firms will need to ensure they are actively managing rising costs and protecting the bottom line if they want to remain profitable.

Trade credit insurance (TCI) is more than bad debt protection – as a customer of credit insurance you will also have access to country, sector and buyer insight and expertise from a team of experienced underwriters that are experts in understanding your sector.

We hold information on millions of buyers and have extensive business intelligence, which can help clients safeguard their businesses and reduce the risk of falling victim to shaky supply chains.

Knowledge is power and if payment and market information is up to date this will allow firms to note changes quickly and provide time to adapt to them.

With a TCI policy, companies have access to insights across their supply chain – helping them to reduce bad debt reserves and mitigate risks they might not have considered.

Richard Palmer, partner, restructuring and insolvency, Horwich Farrelly 

In the ordinary operation of a business, the biggest immediate concern to most trading companies from a solvency perspective is running out of cash, regardless of size.

In dealing with claims made by SMEs, insurers can best help by processing their claims as quickly as possible and ensuring that claims are paid out as quickly as possible.

This is, of course, not always deliverable in practice – the amount due might not be readily calculable and the circumstances may need investigating. But if a claim appears solidly founded in fact, an interim payment is likely to be of real help to any business at this time.

As to other matters, SMEs cannot always obtain full legal and financial advice as to all matters in a timely fashion.

It may be that they need help from insurers and brokers to understand these issues, certainly in the first instance. Many insurers provide helplines that these customers can use so that initial advice can be taken to ensure that SMEs act in accordance with obligations generally and, crucially, the terms of the relevant policy.

Deepak Soni, director, Axa Commercial

In order to truly support SMEs, it’s essential to get under the skin of what they’re going through.

By doing this, insurers will be better placed to make recommendations, help mitigate risk and assist in making businesses more resilient.

Our research into the wellbeing of SME owners showed the cost of living crisis and inflation are among their top stressors.

Sadly, our findings also revealed that nearly half of those surveyed feel they have nobody to confide in about their business worries (The Axa SME wellbeing report – September 2022). Insurers can go some way to lessening the burdens they carry by being there should the worst happen.

We also know that SME owners are short on time and often struggle with the amount of admin on their plates, so choosing the correct insurance can be difficult (The startup report – May 2022).

To help with this and because SME customers come in all shapes and sizes, it’s important that insurers can cater for the varied needs and requirement across a wide range of sectors and professions.

The challenging economic climate may also have led some SME businesses to reduce their insurance spend to cut outgoings in the short term, but this can be a costly decision in the long term.

If these businesses need to claim, the overall pay out may not be enough to help them recover from the event.

Insurers should work with customers to help them mitigate risks in the first place, but we want to make sure they are appropriately covered so they are more able to bounce back and return to normal following a valid claim.

A well risk-managed business with the right insurance policy should give SME owners peace of mind, but getting to that point requires understanding and empathy from insurers.

Troy Stevens, chief executive, Rhino Trade

On the back of the pandemic and recent inflationary pressures, businesses and individuals are under more strain than ever.

The balance sheet protection that insurance provides is vital in protecting individual and business interests.

We at Rhino have been committed to maintaining rates at affordable levels throughout this difficult period and insurance providers can ensure that they aren’t contributing to the ever building pressure small businesses are under.

In our market, tradespeople have felt the effects of this pressure. There is a direct correlation between difficult times and the increase in tool theft for example, which is something that effects the livelihoods of tradespeople greatly and can be the difference of whether businesses can function.

Tradespeople’s customer base are generally more litigious during these periods and we’ve seen an increase in litigation and pressure that tradespeople are put under.

Without valuable financial protection, there is an increased risk of business insolvency and offering affordable insurance ensures that businesses can continue trading through these difficult times.

Andy Hodson, risk, director, Allianz Trade UK and Ireland

This is a tough time for SMEs, which are dealing with the combined fallout of the pandemic, the energy crisis, high inflation and now a recession.

We expect to see that business insolvencies increased by 51% last year in the UK and a further 15% in 2023.

By working together, brokers, underwriters and their clients can shape a solution to help weather the economic storm and advise on cover that can help mitigate the risks, such as TCI.

TCI can help protect cash flow by insuring trade receivables, enabling businesses to trade domestically and abroad with reduced risks of bad debt.

We deploy our extensive risk underwriting and credit analytics experience to help brokers and clients to manage credit loss prevention.

By using these insights to assess the financial stability of a company – businesses can decide what credit limits they will give their clients, so that unpaid invoices don’t mount up and they reduce the risk of bad debt.

This, combined with a TCI product, gives them a belt and braces solution to help keep clients afloat in tough times.