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UK SME Insurance: Market Dynamics and Opportunities 2017

UK SME Insurance: Market Dynamics and Opportunities 2017

Summary

After recording a growth every year since 2012, the United Kingdom SME insurance market suffered a sharp decline in 2016. The market was worth £6.4bn in GWP in 2016, down 9.0% year-on-year. This was caused by tough economic conditions and an uncertainty surrounding the Brexit, which led to increased liquidations, reduced growth in the number of businesses open, and SMEs spending less on insurance.

Declines in the number of businesses and insurance spend for companies with between five and nine employees has been particularly damaging. The number of companies in this size category fell by 4.1%, which is considerable as there are a large number of them and they have a high insurance penetration rate. Total SME insurance spend fell by 22.7% on the previous year, which makes up £300m of the £630m insurance spending.

Critical success factors

  • Cracking the cyber market - SMEs are increasingly worried about the impact of a cyber-attack and insurers are creating more and more policies, yet penetration has declined. A lack of specialist cyber knowledge and too much focus on pricing are seen as the main issues within the industry. It is also believed than many SMEs are taking the optimistic view that a cyber-attack will not happen to them, so the insurers need to convince them of the benefits of insurance. In time, cyber policies could become an essential product for SMEs.
  • Need for more tech - The personal lines space has left commercial lines a little behind on investment in insurtech. While SME insurance may not be the easiest space to introduce technology such as automation into, due to customers’ need for advice, more can be done to connect with clients. Industry insiders have told us they are very much focused on evolving towards preventative services, interacting with customers on a regular basis and helping to stop claims before they happen. Technology such as sensors for fires and leaks are becoming commonplace in home insurance, and could be invaluable to both customer and insurer in the SME market.
The report UK SME Insurance: Market Dynamics and Opportunities 2017 analyze the UK SME insurance market. Economic factors including GDP growth, SME business confidence, and unemployment rates are explored in relation to the UK’s business landscape. Growth in the number of SMEs is explored by business size and industry. The SME market is discussed in relation to uptake of commercial insurance. Finally an estimate of current and historic market size is provided, in addition to a future forecast.

Companies mentioned in this report: AXA, Aviva, NFU Mutual, Allianz, Direct Line, Hiscox, Zurich, AA

Scope
  • Micro businesses account for 95.5% of UK private sector enterprises and 18.6% of generated turnover.
  • 40.0% of SMEs are concerned about the fallout from Brexit, with the possibility of poorer economic conditions the key factor.
  • The UK SME insurance market is forecast to be worth £7.66bn in 2020.
Reasons to buy
  • Be aware of the significance of SMEs within the commercial insurance market and how they are influenced by the UK economy.
  • Adapt your strategy and ensure you remain competitive by understanding the opportunities for growth within the SME insurance market.
  • Recognize the challenges the SME insurance market faces.
  • See our forecasts for the SME market.


  • Executive Summary
    • The SME insurance market stalled due to tough economic conditions
    • Key findings
    • Critical success factors
  • SME Market
    • Introduction
    • UK economic growth remains stagnant
      • Table figure 1: UK GDP has grown for 18 consecutive quarters since Q4 2012
      • Table UK GDP growth by quarter (%), 2009-17
      • The UK economy is extremely dependent on the service industry
        • Table figure 2: The services and agriculture sectors are driving UK economic growth
        • Table Annual GDP of UK economic components, 2013-16
      • The number of company liquidations increased for the first time since 2011
        • Table figure 3: Liquidations rose in 2016 after years of declines
        • Table figure 4: There was a sharp increase in liquidations at the end of 2016
      • Economic conditions are hurting small businesses
      • There was a 6.2% annual increase in the number of companies registered in 2016-17
        • Table figure 5: The number of registered companies continues to grow
        • Table Number of companies registered in the UK, 2011-17
      • Small business confidence collapsed in Q3 2017 after a strong start to the year
        • Table figure 6: Small business confidence has plummeted after a strong start to 2017
        • Table Small Business Confidence Index, 2010-17
        • Table figure 7: Many sectors have seen a substantial change in business confidence
      • UK unemployment continues to fall
        • Table figure 8: The UK's unemployment rate continues to fall
  • SME Insurance
    • The SME space offers opportunities for growth if underinsurance levels and micro enterprise targeting can be improved
      • The number of UK SMEs continues to grow, driven by micro enterprises
        • Table Number of SMEs in the UK private sector, by business size, 2009-16
      • The UK SME insurance market fell by 9.0% to £6.4bn in 2016
        • Table figure 9: SME market GWP fell by 9.0% in 2016
        • Table UK SME GWP and annual growth, 2012-16
        • Table figure 10: Micro enterprises account for 61% of SME market GWP
      • Underinsurance remains a critical issue for the SME space
        • Table UK private enterprise volume, employment, employees, and turnover by business size, 2016
        • Table figure 11: Micro enterprises make up 95.5% of private businesses
        • Table figure 12: From 2013 companies of all sizes have grown in number each year
      • A retention-heavy market makes for tough conditions
    • Construction dominates the SME market by business numbers, while by turnover retail remains key
      • Table figure 13: Construction continues to dominate SME segments by turnover
      • The wholesale and retail sector dominates the SME market by turnover
        • Table figure 14: Wholesale and retail industry continues to dominate SME segments by turnover
    • Public liability is the most commonly held cover among SMEs, while uptake of cyber insurance has stalled
      • Table Insurance penetration among SMEs surveyed (%), 2015-17
      • Insurance product penetration varies by SME industry, but public liability dominates
        • Table Insurance penetration among surveyed SMEs, by industry, 2016
        • Table figure 15: Public liability is the most commonly purchased product
        • Table figure 16: Penetration is consistently higher for larger companies
        • Table figure 17: Public liability leads the way for SMEs
    • The potential impact of Brexit is front of mind for many SMEs
      • SMEs are most concerned about the effects of cybercrime and Brexit
        • Table figure 18: SMEs are most concerned about Brexit and cybercrime
        • Table Concerns of SMEs (%), 2017
  • The Market Going Forward
    • Insurtech is yet to make much impact in the SME insurance space
      • Commercial insurers face a number of opportunities in the digital transformation of insurance
      • Social media is becoming important for SMEs
        • Table figure 19: Larger companies are more likely to use social media, with Facebook leading the way
    • Details of Brexit deal
      • Barriers to trade and access to talent are SMEs' main concerns regarding Brexit negotiations
      • If free movement is restricted the UK could see a shortage of skilled workers
      • Business profits are likely to fall if household disposable income is squeezed
    • SMEs tightening spending and Brexit will drive a flat insurance market over the next few years
      • Table figure 20: The SME insurance market is set to surpass 2015 figures in 2020
      • Table UK SME insurance market GWP forecast (£m), 2012-20f
  • Appendix
    • Abbreviations and acronyms
    • Bibliography

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