At a glance
- Profitable new online markets are opening up all the time for small businesses, but with it can come increased exposures and potential liabilities
- SMEs are becoming more complex, but many do not realise this
- Brokers can play a key part in helping SMEs navigate this new landscape
Online sales generated by UK retailers from international markets will hit £28 billion in 2020, according to research from OC&C Strategy Consultants and Google. This is seven times the £4bn recorded in 2012.
Such explosive growth in online activity is happening right across the commercial sector and it almost beggars belief that it was less than 20 years ago when Amazon sold its first book online (1995).
Nor is it just larger companies enjoying the benefits of online trading and, arguably, the advent of e-commerce has pushed the pace of change faster in the SME sector than anywhere else.
Despite many insurers commoditising their SME products, firms in this sector are becoming more and not less complex. They are changing the way they do business and in doing so they are changing their risk profiles. But many firms do not realise this and they do not understand the exposures they now have and the potential liabilities that come with them.
The growth of online trading
The world is moving online as research from the Office for National Statistics shows. Some of the key findings are listed below.
- Over 20% of people buy groceries online
- Two-thirds of us use the internet to find information about goods and services
- 50% of adults now use the internet to access their bank account
- 92% of the 25-34 age group have bought goods or services online
New markets opening up for SMEs
In a bid to survive the recession, pushed on by ambitious owners and keen to mine the potential of the internet, SMEs have searched out new customers and investigated new markets. They have developed products, evolved services and put them in their online shop windows.
Exporting goods and services, for example, is now big business for small companies. But what standards do products sold in the US have to meet? Are potential product liability exposures understood and do firms realise the risks associated with taking and holding personal information about their customers when selling online?
Product sales are only part of the picture and service providers have been quick to scoop up the opportunities offered by the internet. There are many websites that now connect freelance writers, designers, accountants and architects to clients around the world. Professionals and consultants from myriad disciplines can use email, internet calls and file sharing services to work in real time and exchange documents freely.
This has transformed the way many do business and opened up a whole new wave of opportunities, but SMEs need to understand the risks if they are to make the most of new markets out there.
In many instances, it is unlikely a standard SME commercial policy will provide the breadth of cover needed for firms that have moved into online trading and exporting. Understanding that the old insurance programme is not suitable for the new way of working is absolutely essential to protect the business going forward.
Modern ways of working
In addition to exploring new markets, SMEs have also sought to shrink their cost base and many have decided to do away with their commercial premises and get people working from home. This immediately lowers the outgoings, but it creates a whole new raft of things to think about.
How have employee work stations been set up at home and do they comply with health and safety regulations? If not, an employer opens the door to future claims. Do employees have commercial visitors to their homes and if so how are these potential liabilities managed and mitigated? How do SMEs store and secure their data in these virtual office set-ups?
SMEs not only work and sell online, but they also source more of their own suppliers from the internet and, in many cases, their supply chain and business interruption risks have become more complicated.
None of these issues are insurmountable, but they will trip up SMEs that have not thought about them and managed them accordingly. Insurance brokers are perfectly placed to offer the advice that SMEs need and to make sure they buy insurance that will respond should a claim arise out of their new exposures.
Evolving insurance market
Technology is not only driving the way SMEs operate, it is also helping the insurance market evolve. The launch of ZTrade, for example, is Zurich’s answer to many of the issues brokers have faced when trying to administer SME business efficiently.
Indicative pricing within 60 seconds, cross-selling prompts, the ability to pass referrals to underwriters working from the same system, and a suite of products written for the electronic environment are just some of the ways in which Zurich is helping brokers deliver for their SME customers and protect their margins at the same time.
Government figures show that the number of SMEs in the UK has jumped by 40% since the turn of the millennium and now stands at 4.9 million. The SME market is growing and the risks it faces are evolving. More than ever, SMEs need sound advice from brokers and sophisticated insurance solutions from insurers.