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United Kingdom (UK) SME Insurance – Market Dynamics and Opportunities 2021

The UK SME insurance market was estimated to have been worth GBP10.9 billion in 2021 and is expected to grow at a CAGR of more than 4% during the forecast period. Premiums hardened considerably in 2020 and 2021, which was the sole reason for such strong premium growth. Insurers were unable to grow the volume of policies, as SME numbers declined, and penetration rates fell across most product lines. Although SME numbers rose in 2020, a notable proportion were using the furlough scheme and were therefore unlikely to renew policies.

The UK SME insurance market report sizes the market in 2021 and forecasts future gross written premiums until 2025. It analyzes the macroeconomic factors that influence the space. The report also uses our UK SME Insurance Survey data to analyze SMEs’ attitudes to insurance and the key factors impacting the market in 2021 and beyond.

UK SME insurance market overview

UK SME insurance market overview

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What are the market dynamics in the SME insurance industry in the UK?

The threat of a cyberattack is an increasing concern for SMEs. This trend has only accelerated since the pandemic. Yet cyber insurance penetration remains low and is only growing slowly. There is a great opportunity for insurers to set themselves apart as experts in this field and convince SMEs they can provide cyber insurance that is worthwhile, despite being expensive due to the nature of the risk.

Digitalization is a long-running theme in all forms of insurance and will become especially important post-COVID-19. Most insurers are making efforts to modernize their services by utilizing technology, as doing so is now essential to compete. When used well, AI and automation can set insurers apart. Profit margins are extremely tight in SME insurance, and these technologies can allow insurers to automate various parts of the insurance value chain to reduce operational costs. This will in turn allow them to keep premiums competitive at a time when they are being pushed higher and higher. When used effectively it can also save customers time and provide 24/7 services, so it is something insurers and brokers should be investing in.

Pay-as-you-go insurance has been a key trend in both the commercial and personal lines in recent years, and it is especially valuable to customers during times of uncertainty. Startups such as Zego have made names for themselves in the micro enterprise space by offering flexible, digital policies to tradespeople and delivery drivers, for example. Easy-to-use and cheap policies that allow sole traders to switch cover off when they are unable to work could be a good way for insurers to increase their policy volumes at a time when new business is hard to come by. It is an area insurtechs such as Zego have led in – and traditional insurers need to catch up.

What was the impact of COVID-19 on the SME market in the UK?

The SME insurance market registered strong growth in 2020 in the UK. The impact of the pandemic on SMEs and on SME insurance was undoubtedly enormous. It was also very varied across different products. Lines such as liabilities, tradesman’s insurance, and shop and office insurance struggled a great deal throughout 2020, with some renewals that would have come up during lockdown periods being postponed until they became necessary again. Primary research indicates that one of the starkest knock-on effects of lockdowns was renewal dates changing, meaning the typical seasonality has disappeared for now. Traditionally, March and September are particularly busy months for insurers with renewals, but this is up in the air for now as so many renewal dates have changed over the past couple of years. This makes the market even harder to predict for insurers. However, the pandemic will also have highlighted the importance of having certain cover in place, such as business insurance, directors and officers, key man, and private medical insurance, which is likely to see take-up of such products improve going forward.

Meanwhile, cybercrime has been a hot topic since the pandemic started, with fraudsters increasingly targeting people who are away from offices and potentially more vulnerable to scam emails. There have been regular news stories of cyberattacks and increased phishing attempts, with the National Cyber Security Centre stating there were more online scams attempted in the year to May 2021 than in the previous three years combined. In addition, scams removed from the internet increased 15-fold. Yet SMEs are still not overly concerned about the cyber threat they face, with majority of the respondents either not concerned at all or neither concerned nor unconcerned. But SMEs do recognize that the threat of cyberattacks has increased since COVID-19 and are more likely to purchase cyber insurance as a result; this trend is discussed further later in the report.

Market report scope

Market size 2021 GBP10.9 billion
CAGR (2021-2025) >4%
Forecast period 2021-2025

 Scope

  • Loss of business due to coronavirus remains SMEs’ biggest concern.
  • Key products such as public and employers’ liability saw penetration rates drop considerably from 2019 to 2021 due to the COVID-19 pandemic.

Reasons to Buy

  • Learn about the significance of SMEs within the commercial insurance market and how they are influenced by the UK economy
  • Identify the effects of COVID-19 on the UK SME insurance space
  • Discover GlobalData’s forecasts for the market
  • Recognize the challenges faced by UK SMEs
  • Identify growth opportunities in the SME space

Key Players

Zego

Table of Contents

Table of Contents

1. Executive Summary

1.1 Claims inflation has led to strong premium growth

1.2 Key findings

1.3 Critical success factors

2. The Shape of the UK SME Market

2.1 Introduction

2.2 SMEs account for the vast majority of UK businesses

2.3 Macroeconomic impact on the SME market

2.4 UK GDP rose in Q2 2021 after a sharp drop at the start of 2020

2.5 The impact of COVID-19 remains a huge concern for SMEs

3. The UK SME Insurance Market

3.1 The SME insurance market registered strong growth in 2020

3.2 Packaged insurance policies are popular, particularly among small and medium businesses

3.3 COVID-19 continues to cause SMEs to cancel policies

3.4 Employers’ liability take-up dropped despite being a legal requirement

3.5 Business interruption court cases did not notably hurt SMEs’ trust in insurers

3.6 Insurers should utilize usage-based policies to help SMEs retain policies during COVID-19

3.7 Penetration rates fluctuate across lines, but key products have seen dips

3.8 Larger SMEs are more likely to hold every type of insurance

4. The Future of the UK SME Insurance Market

4.1 SME GWP is set to rise steadily to GBP12.1 billion by 2025

5. Appendix

5.1 Abbreviations and acronyms

5.2 Definitions

5.3 Methodology

5.4 Secondary sources

5.5 Further reading

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List of Tables

List of Tables

Table 1: The number of SMEs in the UK private sector by business size, 2011—21

Table 2: UK private enterprise volume, employment, employees, and turnover by business size, start of 2021

Table 3: The number of company registrations in the UK (000s), 2015-21

Table 4: Policy cancellations because of COVID-19 by products and SME size, 2021

Table 5: Product uptake among UK SMEs, 2018-21

Table 6: The proportion of SMEs thinking about canceling a given product, 2021

List of Figures

List of Figures

Figure 1: UK SMEs account for the majority of private businesses but just over half of total turnover

Figure 2: Company liquidations have fluctuated since the start of the pandemic

Figure 3: More than half of SME turnover is generated by three of 16 industries

Figure 4: Less than one in five individuals anticipate being in the office for more than three days a week

Figure 5: UK GDP has fluctuated heavily since the start of the pandemic

Figure 6: The number of people on Universal Credit substantially increased in April 2020

Figure 7: The UK unemployment rate dropped slightly at the start of 2021

Figure 8: Average pay has fluctuated since the start of the COVID-19 pandemic

Figure 9: COVID-19 remains SMEs’ greatest concern

Figure 10: Nearly two thirds of the retail and wholesale industry worry about generating enough revenue

Figure 11: Nearly two thirds of the wholesale and retail industry are worried about an event preventing them from trading

Figure 12: The SME insurance market saw sharp growth in 2020

Figure 13: Key commercial insurance lines have seen fluctuations since the pandemic

Figure 14: Over 70% of small and medium businesses bought packaged insurance in 2021

Figure 15: Commercial motor products saw the highest levels of COVID-19-related cancellations in 2021

Figure 16: Some SMEs are willing to take the risk of not having employers’ liability in place

Figure 17: Insurers only lost a small amount of trust over business interruption court cases

Figure 18: Nearly a fifth of SMEs that do not have usage-based insurance are open to the concept

Figure 19: Insurers have seen mixed fortunes in terms of penetration across products amid COVID-19

Figure 20: Penetration rates increase as businesses get larger

Figure 21: SME market GWP is set to reach GBP12.2 billion by 2025

Figure 22: SMEs saw another substantial increase in employees working remotely in 2021

Figure 23: SMEs are aware they face increased cyber risk because of COVID-19

Figure 24: SMEs are more likely to purchase cyber insurance because of COVID-19

Figure 25: The majority of small and medium businesses either already have pandemic insurance or are willing to pay for it

Figure 26: Larger SMEs are more willing to pay for pandemic insurance another year into COVID-19

Figure 27: Larger businesses are willing to pay more for pandemic insurance

Figure 28: Forecasting methodology

Frequently Asked Questions

The SME insurance market size in the UK was worth GBP10.9 billion in 2021.

 

 

The SME insurance market in the UK is expected to grow at a CAGR of more than 4% during the forecast period.

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