At a glance
- The number of UK SMEs looking for business opportunities overseas is on the rise
- The risks they face vary hugely, from data breaches to claims of negligence
- Insider puts the risks facing three sectors - manufacturing, online retailers and professional services - under the microscope.
This article counts towards accumulating your annual CII CPD structured learning hours for SME Exporting.
By reading this article, and correctly answering the three questions underneath, you will have achieved the following learning outcome: Describe the most common risks faced by SME exporters.
Visit the CPD Hub to log in and begin accumulating CPD hours.
Zurich’s own research suggests that unlike many European competitors, UK SMEs are increasingly looking beyond the domestic market. Zurich’s 2014 SME Survey found that 13% of UK SMEs expanded their activity to new markets last year, compared to 11% the previous year.
Correspondingly, the number of UK SMEs who reported expanding their activity to target new domestic customers fell from 29% to 22%.
For SMEs, the undoubted benefits of tapping into new markets must be weighed against the risks, which can vary hugely from sector to sector. There are a variety of different insurance considerations for brokers to advise their manufacturing, retail and professional services customers to consider:
A key consideration for manufacturing firms looking abroad is the product safety and quality legislation in the countries they are exporting to, and whether their product liability insurance provides appropriate cover. Brokers should ask their manufacturing customers to consider the consequences for each country they export to, if their product caused a local injury.
Product liability can apply to manufacturers, retailers and distributors, and there have been numerous examples of courts successfully prosecuting foreign companies for products manufactured overseas. For example, the family of a child from Wisconsin, USA, who was severely burned while wearing a highly flammable shirt made in Hong Kong, won an £880,000 settlement from the manufacturer.
Even before a product reaches its export market, it is likely to be subject to a wide range of safety regulations.
For example, certain products being exported within the EU must carry a CE mark – which is proof they meet a set of European directives – but the specific requirements for CE can vary significantly from product to product. Additional export licences are required when exporting many types of goods outside the EU. UK Trade and Investment offers country-specific advice to companies planning to export.
Another important consideration is design responsibility. Manufacturers should be asking themselves if they have accepted any design responsibility for the way a product will be used – and if not, whether this has been explicitly excluded from a contract. For example, a manufacturer exporting car parts may have an implied responsibility to supply parts that are fit for their intended end purpose, unless a contract expressly only requires that they have used reasonable care and skill.
Product liability insurance can provide cover for accidental damage to people and property, but it will not protect a manufacturer who has supplied a product not fit for purpose; nor will professional indemnity insurance. As well as facing a potential claim for a breach of contract, a manufacturer found to have produced a product not fit for purpose could suffer loss of reputation in a valuable new market.
Brokers can play a crucial role by explaining to their manufacturing customers that with the right specialist advice, they can mitigate the risks that exporting could expose them to.
2. Internet retail
Cyber risk is a particularly important consideration for online retailers, who are likely to keep large amounts of personal information about their customers, including passwords and other sensitive data.
SME exporting – the facts:
- 42% of the UK’s medium-sized businesses (50-249 employees) and 11% of small businesses (49 or fewer employees) currently export (Source: Office of National Statistics)
- 64% of SME exporters trade with six or more countries (Source: British Chambers of Commerce)
- Three-quarters of SMEs exporting have been doing so for at least five years (Source: British Chambers of Commerce)
More and more countries are introducing Mandatory Data Breach Notification laws, but who these laws apply to, and how they are enacted, varies.
For example, within the EU, for most data breaches, companies are only compelled to notify their relevant national data protection authority that a breach has taken place. However, where a data breach affects somebody’s privacy, companies have to notify the victim of the data breach personally. In the USA, each state has its own data notification requirements and penalties for failure to comply with them.
Online retailers should not assume that other countries’ data protection rules don’t apply to them. National authorities across the globe are increasingly joining forces to protect and enforce their own country’s data protection laws. For example, Canada and the Netherlands carried out a joint investigation into the mobile text messaging service WhatsApp over alleged privacy breaches.
Notifying those whose data has been breached can be costly and time-consuming for SMEs – this is something cyber liability insurance can protect against. Companies should ensure they have clear and robust strategies for dealing with scenarios including a breach or theft of data, and that they have appropriate cyber liability insurance in place.
Brokers can help their customers by explaining the types of cyber liability insurance cover available. Zurich recently launched a new cyber-protection policy, Security and Privacy, and a breach response service, DigitalResolve, for UK and global customers who face cyber risks.
The level of cover needed may depend on the nature and quantity of the data companies hold or share with third parties, e.g. is it financial, medical, or in some other way sensitive, which all need to be considered.
3. Professional services
The current Government sees the exporting of professional and business services such as law and insurance firms, as one of the UK’s success stories. According to a 2013 Government report, the UK’s professional services sector has a share of exports to developed countries second only to the US and a trade surplus of £19 billion. Less has been said about the challenges of exporting professional services.
One of the biggest barriers is regulation – in a 2014 British Chambers of Commerce survey, UK service sector firms said the biggest barrier to them exporting was excessive overseas regulation.
There are a number of other risks which could have insurance implications.
- Logistics – will services be sub-contracted to another professional? If so, is that professional covered and has the insurer been informed of the arrangement?
- Intellectual property – what are the intellectual property regulations for supplying services to different territories?
- Professional liability – will existing cover apply in a new territory?
The role of brokers is not just limited to ensuring their customers understand the scope and limitations of their professional indemnity insurance. Brokers with a clear understanding of the way their customers operate, and what their exporting ambitions are, can play a crucial rule in helping them manage their risks and reap the benefits of lucrative new markets.
For more information please speak with your local Zurich contact.