Their lives in your hands

Small businesses are operating in an increasingly tough environment. More than half of the Federation of Small Businesses’ 215,000 members have reported a decrease in trade over the past two months and, with cashflow drying up, business owners can be alarmed by a rise in insurance premiums or the withdrawal of vital cover.

Insurers are in a similar position to the banks. Small businesses rely on both to tide them over and help them expand, but they may be more reluctant to pay out and provide their services because of the economic climate.

With about 120 businesses closing each day, insurers and brokers have a responsibility to do all they can to protect firms by honouring policies and providing fair premiums.

Fair premiums

The main types of insurance used by small businesses are for their vehicles, their premises or public or employers’ liability insurance. This demonstrates that owners place great importance on adequately protecting themselves and their business, but Federation of Small Businesses (FSB) research shows that more than a third of small firms have experienced hikes in their premiums for all these types of insurance.

It is unfair in this climate to burden small businesses with higher rates. More must be done to ensure company owners can afford crucial insurance packages so they can operate legally, safely and securely.

Fair protection

Brokers in particular could help small businesses that work in high-risk industries and therefore pay high premiums when purchasing public liability or employers’ liability insurance. One solution is for small businesses to be encouraged to negotiate their premium individually based on their health and safety record in the workplace. This would make their insurance more reflective of their business rather than a generalised estimate based on the industry that it operates in.

Trade credit

Trade credit insurance provides a helpful source of risk management and cover, particularly at a time when more and more small businesses are being paid later by larger companies for the services they supply. FSB statistics show that in the past two months, more than a third of members have been waiting longer to get paid for private sector work. It is estimated that about £30,000 is owed to a small or medium-sized enterprise at any one time.

When a larger business fails, small firms further down the supply chain suffer as they lose vital income. As the recession continues, business owners need to be able to rely on the protection of trade credit insurance when a big contract disappears and they are forced to chase late and unpaid invoices.

Encourage exports

This is a good time for small businesses to take advantage of the low value of the pound by considering exporting. It can provide a good source of income but again will depend on the provision of an affordable and fair service by trade credit insurers.

Protection against crime

Insurers and brokers must show they can support small businesses when they become victims of crime. It is often reported that recessions bring about a rise in crime and the latest Home Office statistics show that burglary and fraud are on the increase.

Small businesses lose up to £800m a year to fraud and online crime, according to FSB figures. “Card not present” scams, where card details are fraudulently used over the phone or online, are rising fast – 29% of our members have fallen victim. More than a fifth of members (22%) have been charged by the bank for the transactions, losing vital income. One solution, backed by a third of our members, is for the banks to provide insurance cover for such transactions to protect the business owner who obviously isn’t at fault.

Crime in all its forms is estimated to cost each small business about £13,500 a year. This underlines the importance of affordable property and vehicle insurance. More than half of our members have reported falling victim to crime in the past 12 months, mostly vandalism, followed by vehicle damage, threatening behaviour, graffiti, shoplifting and burglary. FSB statistics show that almost a fifth (19.5%) of members do not make a claim for such incidents, which may suggest a lack of faith in the system or a fear that their premiums will rise as a result.

Protect business ideas

One way of tackling the credit crunch is to diversify. The more firms widen their remit or break into new markets, the more important it becomes to protect their ideas. Only 13% of small businesses have intellectual property insurance, however. Small firms must be made more aware of the importance of protecting their ideas.

Good advice – and loyalty

Sound financial advice is important at all times. FSB members have access to an insurance advice helpline, but brokers can also help small businesses obtain the best and most affordable deals. This may mean finding a package of insurance rather than individual policies.

More than half (52%) of FSB members rely on financial advisers or brokers when selecting any type of insurance, and most stay with their provider for between two and four years. This suggests business owners are either happy with their deals or do not have time to shop around. It also demonstrates that small businesses are loyal customers so it is only fair for them to expect an affordable service.