At a glance
- The openness of the internet has created unlimited business opportunities for SMEs.
Like other sizes of business, SMEs – start-ups in particular – have embraced the web economy. Their supply chains, distribution and marketing channels have all radically changed, with entirely new business models and fresh ways of thinking suddenly required.
The UK leads the way among its G20 contemporaries when it comes to online trading. The internet economy has grown by 40% over the past three years and will grow at 11% a year in the UK until the end of 2016, according to research from the Boston Consulting Group.
Yet, some insurers and brokers, who have traditionally been the professional risk advisers, also find themselves lagging behind without risk-transfer solutions for these customers and their new ways.
The internet creates huge flexibility around how and where people work. A survey from the CBI and Harvey Nash found that 59% of employers offered remote working to staff in 2011, compared to 46% in 2008 and just 14% in 2006.
For many companies, there is no longer a need for their workforces to be office-based. Having them home-based can even generate significant savings. It also introduces flexibility in opening hours, part-time work forces and the possibility to have a broad local presence that has previously been difficult to achieve.
In 2011, PeoplePerHour.com reported a 68% increase in the number of UK businesses hiring remote workers in the previous 12 months, on the back of a study of more than 45,000 companies.
EL and PL risks for remote workers
While SMEs are enjoying the benefits that come from home-based workforces, they are not always recognising that they still bear the responsibility for the health, safety and security of their staff.
It is important they realise this and seek to control the environment in which their employees operate. If they do not, then they will open the door to all manner of unwanted public and employer’s liability issues, not to mention the need for adequate sums insured to cover office property.
Trading online with customers and suppliers creates a clutch of cyber risks. Although they have drawn much of the attention in recent years, the kind of standard packaged policies offered to smaller businesses would not cover some of the risks. The more SMEs use online processes to power their business and trade online with customers and suppliers, the more they open themselves up to these risks.
There are the first-party events, including: virus or malware attacks, theft or destruction of data and denial of service attacks. Then there are also the resulting costs from: data recovery, forensic investigations, replacement of hardware and the resulting business interruption from the event.
There are then third-party events, such as privacy breaches, data breaches, virus transmission to a third party’s systems and the resulting costs of corrective action, monitoring client accounts, defending legal intellectual property rights, law suits and legislative fines.
Similarly, with modern data-driven businesses, most SMEs will have cover for data reinstatement following a physical material damage loss.
However, this will most likely exclude cover for data loss arising from cyber events such as viruses or hacking. Research from AIRMIC shows that 65% of SMEs do not safeguard their data; while further research from Datamonitor claims 40% of all targeted attacks are against SMEs.
Working online also creates added responsibilities under the Data Protection Act and, at the moment, there is limited understanding of these responsibilities in the SME sector.
Other gaps in cover
In terms of public and products liability, for example, many packaged insurance products will not offer cover for North America and, where businesses are newly selling into any foreign markets, they should be advised to review the insurance they have in place in case they overlook this, especially if they bought a packaged policy online.
With online trading, SMEs can trade with new suppliers, suppliers who can cause headaches. China, in particular, has become the world’s factory and, increasingly, SMEs are sourcing their parts and products from this manufacturing powerhouse.
However, without adequate contractual protection, should something go wrong, it is highly unlikely they will gain any satisfaction from suppliers so far away and going through the process will be slow, complicated, time consuming and expensive.
Many SME businesses underestimate, and are under prepared for, the accompanying increase in risk to their long-term success. They need good advice. With SMEs’ smaller turnovers come smaller margins for error. It’s a reality that these customers’ livelihoods could be at stake where certain risks are concerned, so risk professionals trading SME products have a duty to quickly get to grips with all their emerging risks.
For more information on cyber risk, speak to your usual Zurich contact.