UK SME Insurance: Market Dynamics and Opportunities 2017

Table of Contents
1. EXECUTIVE SUMMARY 2
1.1. The SME insurance market stalled due to tough economic conditions 2
1.2. Key findings 2
1.3. Critical success factors 2
2. SME MARKET 7
2.1. Introduction 7
2.2. UK economic growth remains stagnant 7
2.2.1. The UK economy is extremely dependent on the service industry 10
2.2.2. The number of company liquidations increased for the first time since 2011 12
2.2.3. Economic conditions are hurting small businesses 14
2.2.4. There was a 6.2% annual increase in the number of companies registered in 2016-17 15
2.2.5. Small business confidence collapsed in Q3 2017 after a strong start to the year 17
2.2.6. UK unemployment continues to fall 20
3. SME INSURANCE 22
3.1. The SME space offers opportunities for growth if underinsurance levels and micro enterprise targeting can be improved 22
3.1.1. The number of UK SMEs continues to grow, driven by micro enterprises 22
3.1.2. The UK SME insurance market fell by 9.0% to £6.4bn in 2016 23
3.1.3. Underinsurance remains a critical issue for the SME space 26
3.1.4. A retention-heavy market makes for tough conditions 30
3.2. Construction dominates the SME market by business numbers, while by turnover retail remains key 30
3.2.1. The wholesale and retail sector dominates the SME market by turnover 31
3.3. Public liability is the most commonly held cover among SMEs, while uptake of cyber insurance has stalled 32
3.3.1. Insurance product penetration varies by SME industry, but public liability dominates 34
3.4. The potential impact of Brexit is front of mind for many SMEs 39
3.4.1. SMEs are most concerned about the effects of cybercrime and Brexit 39
4. THE MARKET GOING FORWARD 43
4.1. Insurtech is yet to make much impact in the SME insurance space 43
4.1.1. Commercial insurers face a number of opportunities in the digital transformation of insurance 43
4.1.2. Social media is becoming important for SMEs 44
4.2. Details of Brexit deal 45
4.2.1. Barriers to trade and access to talent are SMEs’ main concerns regarding Brexit negotiations 45
4.2.2. If free movement is restricted the UK could see a shortage of skilled workers 45
4.2.3. Business profits are likely to fall if household disposable income is squeezed 46
4.3. SMEs tightening spending and Brexit will drive a flat insurance market over the next few years 46
5. APPENDIX 48
5.1. Abbreviations and acronyms 48
5.2. Bibliography 48

List of Tables
Table 1: UK GDP growth by quarter (%), 2009-17 10
Table 2: Annual GDP of UK economic components, 2013-16 12
Table 3: Number of companies registered in the UK, 2011-17 17
Table 4: Small Business Confidence Index, 2010-17 19
Table 5: Number of SMEs in the UK private sector, by business size, 2009-16 23
Table 6: UK SME GWP and annual growth, 2012-16 25
Table 7: UK private enterprise volume, employment, employees, and turnover by business size, 2016 28
Table 8: Insurance penetration among SMEs surveyed (%), 2015-17 34
Table 9: Insurance penetration among surveyed SMEs, by industry, 2016 36
Table 10: Concerns of SMEs (%), 2017 42
Table 11: UK SME insurance market GWP forecast (£m), 2012-20f 47
List of Figures
Figure 1: UK GDP has grown for 18 consecutive quarters since Q4 2012 9
Figure 2: The services and agriculture sectors are driving UK economic growth 11
Figure 3: Liquidations rose in 2016 after years of declines 13
Figure 4: There was a sharp increase in liquidations at the end of 2016 14
Figure 5: The number of registered companies continues to grow 16
Figure 6: Small business confidence has plummeted after a strong start to 2017 18
Figure 7: Many sectors have seen a substantial change in business confidence 20
Figure 8: The UK’s unemployment rate continues to fall 21
Figure 9: SME market GWP fell by 9.0% in 2016 24
Figure 10: Micro enterprises account for 61% of SME market GWP 26
Figure 11: Micro enterprises make up 95.5% of private businesses 29
Figure 12: From 2013 companies of all sizes have grown in number each year 30
Figure 13: Construction continues to dominate SME segments by turnover 31
Figure 14: Wholesale and retail industry continues to dominate SME segments by turnover 32
Figure 15: Public liability is the most commonly purchased product 37
Figure 16: Penetration is consistently higher for larger companies 38
Figure 17: Public liability leads the way for SMEs 39
Figure 18: SMEs are most concerned about Brexit and cybercrime 41
Figure 19: Larger companies are more likely to use social media, with Facebook leading the way 44
Figure 20: The SME insurance market is set to surpass 2015 figures in 2020 47

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