Half of UK businesses could be underinsured – Aviva

Half – exactly 50% – of UK businesses are likely to be underinsured, according to Aviva’s third annual Risk Insights Report, released last week (20 January 2022).

This has been exacerbated by an “onslaught of interconnected economic risks” too – with the report showing that 21% of surveyed businesses had reduced, or were considering reducing, their insurance cover over the previous 12 months.

Aviva surveyed senior leaders from 1,200 small, mid-sized and large businesses across the UK between August and October 2022.

Using an analysis of its customer portfolio to estimate that half of businesses were underinsured, the insurer also predicted that 40% of policies with buildings have at least one premises suspected to be underinsured by 20%.

It said: “Cutting corners on insurance can leave [businesses] exposed to considerable risk – high inflation, supply chain disruption and labour shortages are impacting the amount businesses need to insure themselves for, as well as the duration of cover for business interruption insurance to help protect them in the event of a major loss.”

Critical point

Adam Winslow, Aviva’s chief executive for general insurance in the UK and Ireland, explained: “During 2022, cost pressures evolved into a full-blown cost of living crisis across the UK economy.

“While the risk profile for many companies has altered dramatically, many businesses have not taken action to ensure their insurance is relevant to how they operate today.

“Businesses are all too aware of the impact of economic pressures on operations, but many may not appreciate the compounding effect of inflation or supply chain disruption in terms of insurance cover.

“Underinsurance within the SME community may not be new, but the threat it poses is now at a critical point.”

Data-based broking

Speaking to Insurance Times, Winslow added that Aviva could provide brokers with data-based projections on whether clients were likely underinsured based on various characteristics.

“The broker can then have an informed, fact-based conversation with their client,” he explained.

“There are real risks in [being underinsured] for underlying business continuity for financial management of a firm.”

Winslow explained that Aviva data showed that a claim that exceeded £10,000 in value would put one in 10 small businesses in the UK out of business were they to be underinsured – this maps to around half a million SMEs across the country.

He added: “If you’re interested in the financial stability of the UK economy, solving for [underinsurance] might be one of the levers you could pull that would help.”