SMEs Increasingly Underinsured, CEO Warns
Signal Underwriting's CEO notes that small and medium-sized enterprises (SMEs) are increasingly underinsuring their businesses. This trend is driven by rising pressures from cyber threats and complex contractual requirements, creating a risky gap in coverage for many companies.
A staggering 77% of U.S. small businesses are underinsured, a figure that has risen despite 62% seeing an increase in revenue over the past two years. This widespread insurance illiteracy means the majority of owners cannot accurately describe what their policies cover; 83% misunderstand Professional Liability and 74% are wrong about General Liability coverage. Economic pressures are a primary driver, forcing business owners to prioritize immediate expenses like rent and payroll over insurance. This leads to dangerous cost-saving measures, such as increasing deductibles or dropping ancillary coverages altogether. In the past year, 51% of SMEs stopped buying at least one type of insurance to cut costs. Cyber risk is a critical and misunderstood gap, with 43% of all cyberattacks targeting small businesses. Yet many owners believe they are too small to be targeted, and only about one in five SMEs have purchased cyber insurance. The consequences are severe, as roughly 60% of small businesses that suffer a cyberattack shut down within six months. Client contracts frequently impose insurance requirements that SMEs fail to meet. It is common for commercial clients to demand public liability limits of £5 million or £10 million, while many small businesses carry only the £1–2 million they started with, placing them in immediate breach of contract. Inflation has silently eroded the value of existing coverage. Rising costs of materials and labor mean that property valuations are often outdated, which can lead to insurers applying an "average clause" that reduces claim payouts in proportion to the underinsurance. Furthermore, 43% of business interruption policies have coverage limits that fall short by an average of 53%. Businesses often outgrow their policies without making necessary updates. As a company expands services, buys new equipment, or moves to a larger facility, its risk profile changes. Failing to declare these changes to the insurer can result in claims being denied for undeclared activities.
