The number of private sector businesses in the UK at the start of 2019 was 5.9 million. Over 99% of these businesses (5.85 million) are small to medium sized enterprises, companies with less than 249 employees – SMEs for short. Since 2018, the amount of businesses in the UK has grown by 3.5%. And if we go back even further to 2000, there’s been an overall increase of over two thirds (69%). That’s another 2.4 million businesses in just under 20 years1.
If we look at this from a protection point of view - has there been an 69% increase in the amount of business protection sales since the start of the 20th century? Unfortunately, I can’t find that answer. However, according to the latest Swiss Re protection term watch report there was a total of 21,477 new business protection policies sold in 2018. This was an increase of 1.4% on the previous year2. This doesn’t feel like much of an increase, especially given the rise in the SME population.
Without the right protection, SMEs are in danger of going bust
To better understand SMEs and their understanding of business protection - how important they think it is and where they get their financial advice from. We asked several SMEs to complete an online survey - we received 748 responses and our findings are quite worrying.
For example, 78% of SMEs have at least one business protection product. Yes, that’s a high percentage, but it does include protection products such as professional indemnity insurance, property and vehicle insurance. When we focused on business protection covers for staff and owners such as key person, shareholder or loan protection the figures dropped dramatically - to just 22%, or around 1 in 5 having at least one of these.
Why such a low uptake? Don’t they think it’s important? They do, well more do, as just under half of those who were aware of these types of insurance thought it was important to have key person protection (44%) and one third (33%) thought it was important to have shareholder or partnership protection.
There could be a perception that businesses treat their people like machines that never break down, but unfortunately, they do, and the impact can be devastating for a small business – much worse than say a computer breaking down, which is much easier to replace. For example, what would happen if a key employee who’s integral to the success of that business was to die or a shareholder was to suffer a critical illness and wanted to retire and sell their share of the business. Would the remaining shareholder(s) have the funds to buy them out? Business protection covers these types of events by providing funds to help that business cope at what would be a very troubling time.
Who are SMEs talking to about their protection needs?
One of the key questions we asked in our survey, was ‘who has discussed or recommended that your business take out business protection?’ And rather worryingly over half of the respondents (52%), which equates to around three million SMEs3 said that no one has discussed or recommended that the business takes out this insurance. 18% of respondents said they’d spoken to their accountant or legal adviser and just 10% had spoken to an actual financial adviser!
But what’s the solution? Again, I’m afraid I don’t have a definitive answer. I do know that our research told us that ‘previous experience’ and ‘recommendations’ play an important role. And that 15% of respondents with business protection were prompted to take out a plan after speaking to a financial adviser. Talking to more of these types of clients is a start, but how do you do this?
18% of respondents said they’d spoken to their accountant or legal adviser and just 10% had spoken to an actual financial adviser!3
You may already have some business owners in your client bank - if they have personal protection in place, it may be an idea to talk to them about protecting their business too. And as a financial adviser you’re more than likely to be an SME yourself so why not join a trade body (if you’ve not already done so) and offer to present on this topic? There are other ways too, such as referrals from some of the professional connections mentioned above.
Business protection – the opportunity
The rewards for you as an adviser, talking about and selling more business protection could be financially beneficial. At Royal London, in 2019, our average annual premium for a Personal Menu Plan was £385, while the average for a Business Menu Plan was £1,305. So about one business protection sale equates to around 3.5 personal protection sales. Plus, with business protection there’s more opportunities for repeat business due to say structure changes or expansion plans.
So, if you have a business owner in your client bank, make it a point to talk to them about business protection – make sure they’ve got the right plans in place to protect their business should something go wrong. We have lots of tools and information on our website that can help.
Alternatively, if you want to learn more about business protection, you can watch our webinar - ‘An introduction to business protection’ which will count towards your CPD time.
Note: All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 748 adults. Fieldwork was undertaken between 28th October - 1st November 2019. The survey was carried out online. The figures have been weighted and are representative of British business size.
1. National Statistics – Business population estimates for the UK and the regions 2019 (October 2019)
2. Swiss Re Protect Association Term & Health Watch 2019 (July 2019)
3. The Business population estimates for the UK and the regions 2019 reports there are 5.9 million SMEs in the UK. Percentages from the YouGov survey have been equated into real term figures. Royal London has calculated these figures by removing Northern Ireland’s business population to equate to British figures and extrapolating the number of SMEs from a percentage of the 5,776,000 SMEs in the British business population. All calculations of real term figures are estimations.