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Diversification leaves SMEs vulnerable to new liabilities

At a glance

  • Almost two-thirds of SMEs are diversifying their products and services to cope with economic instability
  • While opening up new revenue streams, it can leave companies exposed to new risks
  • Brokers need to make their clients aware of fresh liabilities associated with new services and markets

Since 2008, the global economic recession has forced UK SMEs to become stronger, more resilient and better prepared to manage whatever challenges the future holds. One way that SMEs have held firm in the face of financial uncertainty is through becoming more operationally flexible and diversifying their products and services.

A new report from Zurich and the Economist Intelligence Unit (EIU), Adapting in tough times: The growing resilience of UK SMEs, has revealed that almost 63% of SMEs in the UK have sought to expand their market by diversifying their business model. However, many businesses have left themselves vulnerable by not expanding their insurance coverage as they’ve moved into new markets.

Longer hours, greater coverage

Diversification has enabled many previously low-performing SMEs to open up new markets of revenue. Whether this is offering new services or simply trading for longer hours, it has allowed many SMEs to outpace their competitors who have been happy to simply offer increased discounts. While some SMEs have reduced staff or wages to save money, it has been the more entrepreneurial companies that have seen their profits increase.

However, such business expansion or enforced reductions have forced many SMEs to take unnecessary risks. In many cases, it is ironically a desire to work with new businesses that has left their own exposed.

By moving into business areas they may not be familiar with or by making cut backs, many SMEs have failed to realise, or ignored, several crucial areas of business protection.

It is essential that while they have one eye on the future, they should also ensure they have the other on protecting what they already have.

For example, if an SME client has extended their opening hours, they need to ensure that their liability insurance is updated. If they don’t, it means they are trading illegally, and with 38% of all major accidents occurring in the workplace, they could leave themselves vulnerable to claims.

With over 4.8 million SMEs in the UK, and over 47% reporting that they’re implementing longer hours, there could potentially be almost 2.4 million businesses liable if an employee has an accident on site.

Strategic performance

Whereas 47% of SMEs have reported working longer hours, 48% have opted to diversify into new product or service areas. This strategic shift aims to have more of a long-term impact, but still leaves SMEs exposed to new industry regulation.

Whether it is bookstores that opt to serve coffee to entice customers, or newsagents introducing lottery machines, ensuring the business has the correct level of coverage is essential.

Brokers have a crucial role to play to ensure their clients are aware of the liabilities they face if moving into new markets or offering new services, and to make sure they have the right level of insurance to cover any incidents.

Jason Wilson, Head of Development for SME, said: “It is heartening to see the UK’s entrepreneurial spirit shining through in this time of economic turmoil with so many businesses demonstrating flexibility and versatility in this ever-changing marketplace. However, with many of these businesses failing to have the right insurance, they are leaving themselves vulnerable for claims running into thousands of pounds.

“It is essential that while they have one eye on the future, they should also ensure they have the other on protecting what they already have.”

Adapting in tough times: The growing resilience of UK SMEs will be published on 10 April.

Image © Getty

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