News

February 05, 2010

Downturn causes business owners to re-evaluate risks

The recession has led small-business owners to re-evaluate the risks they face and the insurance they need, research from Nottingham University has found.

In a survey of 580 small businesses by the University’s Centre for Risk and Insurance Studies, 52 per cent highlighted reduced demand for their goods and services as their biggest risk, with late payments in second place (41 per cent), closely followed by concern about competition (32 per cent).

The research also revealed a business insurance ‘wish list’ for the small firms questioned. It found that 43 per cent want better protection against unpaid invoices, 21 per cent want more comprehensive Intellectual Property (IP) cover and 16 per cent wanted to insure against costs to sue suppliers for failing to deliver.

“The recession may have led to small businesses viewing risks differently, being particularly concerned about financial risks and increasingly competitive markets,” said the University’s business school director, Christopher O’Brien.

“In addition, there may be circumstances beyond the business owner’s control that they are not insured against, but which could cripple the business,” he added. “So there are areas where insurers may wish to continue expanding the protection they provide to help businesses protect their cashflow and reduce damage caused by loss of revenue.”

However, the research also highlighted that many small firms were unaware that cover for these types of risks was often already available, such as trade credit insurance which protects against bad debt, and business interruption insurance which pays out if a firm has to stop trading.

The British Insurance Brokers Association’s (BIBA) technical services manager, Steve Foulsham, said one reason for the lack of awareness was that growing numbers of small firms were now buying insurance online or direct through an insurance firm.

“There’s a danger that in these cases, firms aren’t getting the specialist advice they need,” he said. “We would always advise using a broker, and preferably one experienced in the relevant industry sector.”

Foulsham said that business owners may have struggled to access credit insurance during the recession, but it should be less difficult now conditions are improving.

“While many insurers have withdrawn policies covering bad debt during the recession, more companies are now starting to reintroduce this type of insurance,” he said.