Each year hundreds of thousands of small businesses go without insurance for the risks they face. Others take out too little cover, which means they will not be fully protected if they need to make a claim.
Today Public First publishes new research examining the problem of uninsurance and underinsurance among UK SMEs. The report Small Business, Big Risk presents the findings of a six month review commissioned by the ABI. The work comprised:
- A representative survey of 1,002 SME decision-makers
- Focus groups with sole-traders and micro-business owners
- Workshops with insurers and small business representatives
Some insurance products are mandatory for businesses, depending on their circumstances; some are strongly recommended; and others are discretionary but help businesses manage risks or enhance employee benefits. But many SMEs are uninsured (they do not have insurance for a risk they face) or underinsured (their cover is less than their potential liability).
The consequences of inadequate insurance are sometimes catastrophic. We heard of businesses that had to close after experiencing an unexpected incident without sufficient cover. The growing complexity of the business environment exacerbates this. In 2025 cyber risks hit the headlines when household-name firms had to suspend their operations. But SMEs are typically more vulnerable and less well placed to respond to cyber threats than larger firms – and few are buying cyber insurance.
SME use of insurance
We found that around half of SMEs report having employee and public liability insurance, while around 30% hold a range of other products. SMEs buy insurance through comparison websites, brokers and direct from insurers in roughly equal numbers. Median insurance spending ranges from £250-£499 per year for sole-traders to £10,000-£19,999 for firms with 50-249 employees. 40% of the SMEs we surveyed had made insurance claims, with most of these having seen their claims accepted.
SME perceptions and understanding
SMEs are mainly positive about insurance. Most say their policies are necessary, reliable, and easy to understand. They also trust insurers to pay out, and trust insurance brokers to understand their needs. But while SME decision makers usually say they understand the products they buy, we found that many are unaware or uninformed about products they do not have that would be suitable to their needs. This is particularly true for the self-employed: a large minority of sole-traders report not even having heard of many common business insurance products.
Uninsurance and underinsurance
28% of sole-traders said they did not have any insurance (something that was far less common for firms with employees). However, a surprisingly high number of SMEs of all sizes failed to mention products which are compulsory, considering their circumstances. There were employers who said they did not have employee liability insurance; and businesses owning vehicles who reported being without third party motor insurance. We’re sure there must be some under-reporting or misunderstanding going on – but it is also clear that coverage of these mandatory products is not universal.
When it comes to discretionary insurance, an even higher share of SMEs go without cover. A large proportion of firms with equipment, stock or tools say they don’t have contents insurance; and the same goes for firms with premises who do not have business interruption cover, and firms with IT systems who don’t have a cyber product. This low take-up is driven by lack of awareness, perceived relevance and concerns about affordability (sole-traders and micro-employers are particularly price-sensitive).
Underinsurance is harder to measure without drilling deep into the circumstances of individual business. But one clue that it is rife is that only half of businesses review their insurance needs at least every 12 months, while business circumstances are changing all the time. In our qualitative research we found that underinsurance is driven by misunderstanding of products, deliberate decisions, and a failure to update cover.
Recommendations
In response to these challenges Public First has developed nine recommendations for action by insurers, brokers, government, and bodies working with SMEs.
- All parties should work together to raise awareness and understanding of risks facing SMEs and the benefits of insurance
- Insurers and government should consider collectively measuring protection gaps by pooling market data
- Government or regulators should investigate potentially low take-up of compulsory insurance and the benefits of comprehensive coverage
- If low take-up of compulsory products is demonstrated, government should take action to improve compliance
- Insurers should continue to review the design and presentation of SME products to improve understanding, tailoring and take-up
- Insurers, brokers and comparison sites should refine customer journeys to support clearer understanding of needs and appropriate cover choices
- Insurers, brokers and comparison sites should improve review and renewal processes so that renewal on current terms is not the default
- Brokers should further promote their offer to SMEs, focusing on high customer satisfaction and personalisation
- All parties should work together to make the strategic economic case for SME insurance
You can find the report here.
In addition to the report, Public First supported the Association of British Insurers to write an SME-facing guide designed to help SME decision-makers find the best insurance for their business.