Small firms are cutting cover to afford it, and paying at claim time
Most small firms now borrow to pay for their insurance, and some are trimming cover and raising excesses to keep up. The saving tends to come back, as a smaller settlement, on the day of the claim.
The renewal lands, the price is higher than last year, and the quickest way to make it fit is a lower sum insured or a bigger excess. For many small businesses, that is what has happened.
The money saved at renewal is usually spent again, with interest, on the day of the claim.
Ninety per cent of small firms now use credit to pay for at least one insurance policy, and the average amount borrowed has risen 10 per cent in six months to £2,140, according to premium finance lender Premium Credit, in research reported by Insurance Edge. Fourteen per cent have reduced their level of cover in the past two years and 38 per cent have raised their excesses. Thirty per cent say they could not claim for damage in the past five years because they had no cover or not enough.
The view from the other side of the counter matches. In Aviva’s annual Broker Barometer, reported by Insurance Business in March, 68 per cent of brokers reported an increase in claims declined or settled for less because of underinsurance. Aviva’s own sample of commercial property covers written in 2025 found 67 per cent underinsured, with an average gap of 79 per cent between sums insured and estimated rebuild costs.
Hold those two facts together. Firms trim cover because money is tight, and the claims they then make are cut because the cover was trimmed. A sum insured that is too low does not stay a number on a schedule. It comes off the settlement.
Only 24 per cent of businesses regularly commission a rebuild cost survey, brokers told Aviva. Its innovation director warns that relying on index increases of around 4.4 per cent a year can leave a customer materially underinsured for 15 to 25 years.
If the premium has to come down, ask what is being given up before you sign. A higher excess is a cost you can see; a sum insured that is too low is one you only find out about when something has already gone wrong.