Small businesses are the backbone of economies. They’re the cafés that bring communities together, the digital start-ups driving innovation, and the family-run firms that have weathered generations of change. Their resilience and ambition fuel growth and opportunity, shaping societies and enabling progress. Yet, behind this vital contribution lies a vulnerability that’s too often overlooked.
The inaugural global Hiscox Global Protection Gap Report, based on responses from over 6,000 small business owners in the UK, USA, France, Germany, Spain, and Portugal, reveals that while 92% of owners are kept up at night by threats like theft, cyber-attacks, and workplace injuries, many lack critical cover. In some markets only 43% have public liability insurance, and even fewer truly understand what their policies protect.
The consequences of underinsurance can be devastating.
A single uninsured event such as a cyber breach, customer injury, or professional error, could force a small retailer or manufacturer to cease trading, wiping out years of hard work overnight. This isn’t just a personal tragedy; it has economic implications too. Underinsured businesses are less equipped to survive shocks and less able to invest in innovation. Without the confidence to scale, knowing key risks are covered, entrepreneurs are constrained.
Why does this gap persist? The report highlights several factors:
- Misunderstanding of coverage: Nearly two-thirds of owners couldn’t accurately describe what public liability insurance covers, and confusion is even higher for cyber and professional indemnity policies. Many mistakenly believe their policies cover events like fire or flood, or legal claims related to advice, when these are often excluded unless specifically added.
- Outdated policies: One in three SMEs haven’t reviewed their insurance in over three years, despite business growth and evolving risks. As businesses expand, for example adding staff, new products, or increasing revenue, their insurance needs change, but their cover often doesn’t keep pace.
- Delayed action: Many wait until turning a profit or going full-time before buying insurance, leaving them vulnerable in the crucial early stages. Around a quarter of owners only purchased insurance after their business became profitable.
- Low coverage limits: A majority of SMEs cap their insurance at £/$/€1 million or less, which may be insufficient for major claims, especially as their business grows. For professional indemnity, 25% have limits below £/$/€500,000, potentially exposing them to devastating costs.
- False sense of security: Many business owners believe they’re protected against risks like cyber-attacks or property damage, but their policies may not actually extend that far. This misconception can lead to dangerous gaps in resilience.
- Underestimating cyber risk: A significant number of SMEs believe their business is too small to be targeted by cyber criminals, or that their systems are secure enough without dedicated cyber insurance. In reality, cyber threats can impact businesses of any size, and the costs of recovery can be substantial.
Joanne Musselle, Hiscox’s Group Chief Underwriting Officer, urges SMEs to take a proactive approach: “Insurance is a critical safety net, but it’s not a substitute for risk management. Understanding your risk landscape and regularly reassessing your cover is essential.”
Top Tips for SMEs:
- Audit your risks: Document potential threats—operational, financial, legal, reputational, and cyber—and plan how to mitigate them.
- Stay informed: Engage with industry forums and trusted advisors to keep up with changing risks.
- Review your insurance annually: Ensure your cover matches your business’s current size and activities, and don’t underestimate worst-case scenarios.
- Take action today. If you’re a small business owner, don’t wait for the worst to happen.
Closing the protection gap builds resilience. When small businesses are properly protected, everyone benefits, from local communities to national economies.
Read the Hiscox Global Protection Gap Report to explore solutions and practical resources designed to help you build resilience and protect what you’ve worked so hard to create.
