Getting the right insurance: practical steps every small business should take
Insurance plays a critical role in helping small businesses recover when things go wrong. Yet research shows many SMEs either do not have cover for key risks or hold insurance that may not fully reflect how their business operates today.
These issues often come into sharper focus when a business is seeking finance, whether through a loan, overdraft or asset finance. Lenders need confidence that a business can continue operating and repay borrowing if something goes wrong. Business owners, meanwhile, need reassurance that a disruption will not undermine their ability to meet those commitments. Having the right insurance in place helps support both.
This article draws on the ABI’s SME Insurance Guide and the Small Business, Big Risk: Tackling SME Underinsurance research, to set out practical steps small businesses can take to make better informed insurance decisions.
The underinsurance challenge
Research commissioned by the ABI and carried out by Public First found a clear gap between the risks SMEs worry about and the cover they hold.
Underinsurance does not mean a business has done something “wrong”. It often reflects how difficult it can be for time‑pressed owners to assess risks, compare policies and balance short‑term costs with long‑term resilience. However, the consequences can be serious. Without adequate cover, a business may struggle to absorb unexpected costs, recover after a major setback, or even find that a claim is invalid because the policy no longer applies.
Step one: understand the risks your business faces
Every business faces a different risk profile. A sole trader will have very different exposures from a business with employees, premises or complex supply chains.
A useful starting point is to ask a few straightforward questions:
- What events would seriously disrupt the business if they happened tomorrow?
- What assets, data or income streams would be hardest to replace?
- Where would legal or regulatory responsibility sit if something went wrong?
Step two: know which types of insurance can help protect your business against its biggest risks
Some types of insurance are required by law. Employers’ liability insurance is mandatory if a business employs staff, and motor third party liability insurance is required where vehicles are used for business purposes.
Beyond this, most insurance decisions are about protecting the business rather than meeting a legal obligation. Common types of cover include public or product liability, professional indemnity, commercial property and contents insurance, business interruption, cyber insurance and legal expenses insurance.
Many businesses only recognise the value of these products after a problem occurs. Reviewing cover before that point is usually far less costly than managing the consequences later.
Step three: check your cover is sufficient and keep it under review
Having insurance does not automatically mean having enough insurance. Underinsurance often arises because businesses underestimate the value of their assets, turnover or potential liabilities. Equipment values may have increased, operations may have expanded, employee numbers may have grown, or digital risks may have become more significant over time.
Regular reviews help ensure cover remains aligned to how the business actually operates. This is especially important where borrowing is involved. Insurance that reflects the true scale and nature of a business can help it continue trading, generate income and meet repayment obligations if the unexpected happens.
Step four: use expert support where needed
Many small businesses find it difficult to compare policies or understand exclusions, limits and conditions. Insurers, brokers and specialist advisers can play an important role in explaining how cover applies to real‑world risks and highlighting where there may be gaps.
Even where insurance is bought online, it can be valuable to ask questions, seek clarification and be clear about what is and is not covered. This is often particularly helpful when insurance is discussed alongside finance, as advisers can help ensure cover supports both day‑to‑day operations and longer‑term financial commitments. If in doubt, always speak to your insurer.
Building resilience, not just compliance
Insurance is not about predicting every possible setback. It is about ensuring that when something unexpected happens, a business can recover, continue trading and meet its ongoing commitments.
By taking a structured approach – understanding risks, meeting legal requirements, ensuring cover is appropriate and reviewing it regularly – small businesses can make more confident insurance decisions and strengthen their long‑term resilience. This also supports sustainable growth, giving both business owners and finance providers greater confidence that the business is prepared for disruption.
Further practical guidance is available in the ABI’s SME Insurance Guide and Small Business, Big Risk: Tackling SME Underinsurance, both designed to help business owners navigate insurance with greater confidence.
Agata Gorecka, Policy Adviser, General Insurance Policy, The ABI
