According to research carried out by Direct Line, millions upon millions of SMEs could be putting themselves at unnecessary risk should they encounter business disruption.
The study, which assessed small businesses in the UK, found that the average SME insurance claim is in the region of £2,500, which is significant when taking into consideration the fact that the average SME profit per month stands at something close to £3,900. However, what is even more of a concern is that the average profit raked in by a sole trader every month is closer to £1,000, so claiming on insurance could be even more detrimental given that payments do not tend to come in immediately.
Business insurance is, of course, designed to ensure that companies – large, small or otherwise – are protected should something happen. But what are the most common claims made by SMEs, and what can SME owners do to ensure they won’t have to make a claim in the first place?
Most common claims
Small businesses can be very vulnerable should something go wrong with their operations. Profit margins can very often be tight, and given that most SMEs don’t have much money stored away for a rainy day – research has found that one in three SMEs experience routine cash flow problems – anything that puts a spanner in the works of the day-to-day routine is liable to be not only costly but fatal.
1. Burglary and theft
Experiencing a break-in is something that, quite clearly, has numerous implications. Not only are important items stolen – items that may be required for an SME to carry out its day-to-day operations – but doors and windows are liable to be broken, rooms will be left in a mess, and new security measures (locks, alarm systems) will need to be purchased. All of this will put a massive strain on finances.
2. Defective pipes
This is one of the key causes of problems for small businesses. However, while it may appear on the surface that this is a problem that would result in a quick payout, it could actually cause long-term financial difficulties for an SME. Not only could a burst pipe mean the closure of the property for an extended period of time, but some insurers may claim that the issue was not solely due to a faulty pipe, but actually owes something to a ‘pre-existing’ problem. Should this occur, the payout is likely to take even longer to arrive, or may not arrive at all.
3. Storm damage
Storm damage can be immensely damaging for businesses – and insurance companies alike. This is, of course, something that will be more likely to affect some businesses more than others depending on location, business type and whether adequate preparation has been put in. But being hit by flooding, high winds or – in some very unfortunate scenarios – lightning strikes, can be financially crippling.
What can be done to prepare?
There are any number of things that SME owners can do to minimise the chance of encountering business disruption:
– Install adequate security systems across all external windows and doors
– Do background checks on all employees (if you believe they may be liable to commit theft)
– Install software that can track inventory (and be vigilant about using it)
– Check the condition of your property regularly (walls, ceilings, pipes, electrics)
– Keep equipment and machinery in good condition
– Understand your insurance policy
– Keep expensive items (laptops, computers) out of sight when the property is shut