Get the right insurance

Small and micro business Insurance: explaining the types of insurance you may need, why we need to close the gaps in insurance from non-insurance and underinsurance ,and how the wider economy will benefit by encouraging small businesses to be fully insured.

The information that follows is based on information from the Association of British Insurers (ABI) and insurance guides.

Insurance as a Driver of SME Resilience, Confidence and Growth

Why small and micro businesses need a stronger insurance foundation

Insurance is not just a compliance requirement. It is a critical enabler of resilience, continuity, investment and growth for small and micro businesses. Yet insurance remains under‑prioritised by small businesses themselves and in UK small‑business policy, despite being essential to economic stability.

• 44% of UK SMEs operate with no insurance at all, exposing them to risks that could destroy their business overnight.

• Government’s 2025 Small Business Plan did not include insurance, even though the Department for Business and Trade had just launched Small Exporter Builder insurance to support international trade.

• The National Cyber Security Centre barely references cyber insurance in its SME guidance, despite cyber‑attacks rising sharply.

• Business groups and regulators recognise resilience as a priority but insurance gaps remain unaddressed.

Closing these gaps requires government leadership, trade‑body engagement, and industry collaboration. But first, small businesses need clarity on what insurance they need and why it matters.

Why Insurance Matters for Small and Micro Businesses

Insurance is the foundation of resilience in small and micro businesses. It protects against shocks that they can’t absorb alone and enables them to take opportunities they would otherwise avoid.

Insurance enables SMEs to:

Stay operational after a crisis

Fire, flood, cyber‑attack, theft, or liability claims can shut down a small business instantly. Insurance provides the financial buffer to recover.

Trade with confidence

Many customers, suppliers, and partners require proof of insurance before working with a business.

Invest and grow

Insured businesses are more likely to:

• hire staff

• take on larger contracts

• export

• adopt new technology

• secure finance

Meet legal and regulatory obligations

Some policies are compulsory, but many others are essential for risk management even if not legally required.

Protect owners personally

Without insurance, founders often carry unlimited personal liability for claims, legal costs, or business interruption.

The Core Types of Insurance SMEs May Need

(Based on ABI and SME insurance guidance)

Small and micro businesses should consider:

A. Legally Required Insurance

Employers’ Liability Insurance (EL) (compulsory)

Required for any business with employees.

• Covers injury or illness caused by work.

• Fines: £2,500 per day for non‑compliance.

Commercial Motor Insurance (compulsory)

Required for any business using vehicles.

B. Liability Insurance (highly recommended)

Public Liability Insurance (PL)

Protects against claims from customers or the public for injury or property damage. Essential for:

• shops

• trades

• events

• home‑based businesses with visitors

Product Liability Insurance

Covers injury or damage caused by products you design, manufacture or supply.

Professional Indemnity Insurance (PI)

Covers claims for negligent advice or services. Required for some professions; recommended for:

• consultants

• designers

• IT professionals

• trainers

• coaches

C. Property and Continuity Insurance

Buildings Insurance

For businesses that own their premises.

Contents and Stock Insurance

Covers equipment, tools, stock and materials.

Business Interruption Insurance

Covers loss of income if you cannot trade due to an insured event (fire, flood, etc.). This is one of the most important but most overlooked policies. A large proportion of businesses that are flooded or damaged by fire never trade again. Customers go elsewhere during the business interruption and often don’t return even if the business does recover.

D. Digital and Data Protection Insurance

Cyber Insurance

Covers:

• ransomware

• data breaches

• business interruption

• recovery costs

• legal and regulatory penalties

Cyber‑attacks on SMEs rose to 53% in 2023. Average cost: £15,300. yet cyber insurance is barely mentioned in national cyber guidance.

E. People and Leadership Protection

Directors’ & Officers’ Insurance (D&O)

Protects directors from personal liability for alleged wrongful acts.

Key Person Insurance

Protects the business if a founder or critical employee becomes unable to work.

Policies to cover short and long term employee sickness with Early Intervention (to help get people ready to return to work sooner)

F. Sector‑Specific Insurance

Trade‑specific policies

Examples:

• Construction: contractors’ all‑risks, plant cover

• Retail: shop insurance packages

• Hospitality: loss of licence

• Creative industries: equipment and media liability

• Exporters: trade credit insurance, cargo insurance, Small Exporter Builder insurance

4. The Business Benefits of Insurance - Even When Not Compulsory

Insurance is often seen as a cost but it’s a strategic investment that delivers real benefits.

1. Protects cashflow

Insurance absorbs shocks that would otherwise drain working capital.

2. Enables access to contracts

Many clients require you to have PL, PI, cyber or D&O before awarding work.

3. Supports access to finance

Banks and investors view insured businesses as lower risk.

4. Improves operational resilience

Business interruption, cyber and property insurance reduce downtime.

5. Builds customer trust

Insured businesses appear more professional and credible.

6. Reduces personal risk for founders

Without insurance, owners may face personal liability for claims.

5. Why Insurance Gaps Persist

Despite its importance, insurance is not embedded in UK small‑business policy.

Businesses

• Many see insurance as a cost, not an enabler or an investment in the future of the business.

• 44% operate with no insurance even when it’s compulsory, and many more are underinsured (claims payouts won’t cover the full losses).

Business Groups

• Chambers, FSB, and sector bodies prioritise resilience and offer members insurance packages, yet insurance is rarely talked about as a resilience tool.

Government

• The 2025 Small Business Plan didn’t mention insurance at all.

• Yet DBT launched Small Exporter Builder insurance to support SME exporters, showing the value of targeted insurance interventions.

Regulators

• The National Cyber Security Centre barely references cyber insurance in small business guidance, despite rising attacks.

Conclusion:

With the right approach, insurance can help small and micro businesses survive shocks, seize opportunities, and grow with confidence.

If the UK wants a more resilient, productive and internationally competitive small business sector, closing insurance gaps must be a priority.

This requires:

• leadership from government

• engagement from business organisations

• innovation from insurers

• and clear, accessible guidance for small businesses.

Insurance is more than protection. It’s a foundation for resilience, continuity, and growth. Use this checklist to identify the policies your business may need and the benefits they bring. However, business needs change, sometimes very quickly. If you are to avoid being under insured, you need to review all your policies regularly: do you need them now when you didn’t in the past; do you need to increase the cover to protect where your business has grown to?

1. Legally Required Insurance

These policies are compulsory for many businesses.

☑ Employers’ Liability Insurance

Required if you employ anyone (including part‑time, temporary, or casual staff). Protects against claims for work‑related injury or illness.

☑ Commercial Motor Insurance

Required for any vehicle used for business purposes.

2. Core Protection for Most SMEs

These policies are not compulsory but are essential for managing everyday risks.

☑ Public Liability Insurance

Protects you if a customer or member of the public is injured or their property is damaged.

☑ Product Liability Insurance

Covers claims arising from products you design, make, repair, or supply.

☑ Professional Indemnity Insurance

Protects against claims of negligence, mistakes, or poor advice. Important for consultants, designers, IT professionals, trainers, and service providers.

☑ Business Contents & Equipment Insurance

Covers tools, stock, equipment, and materials against theft, loss, or damage.

☑ Buildings Insurance

If you own your premises, this covers the structure against fire, flood, or other damage.

3. Business Continuity & Financial Resilience

These policies help your business survive disruption.

☑ Business Interruption Insurance

Covers lost income if you can’t trade due to an insured event (e.g., fire, flood). Often the difference between recovery and closure.

☑ Cyber Insurance

Covers cyber‑attacks, data breaches, ransomware, and recovery costs. Increasingly important for all businesses, even micro firms.

☑ Trade Credit or Export Insurance

Protects against non‑payment by customers and supports international trade.

4. People & Leadership Protection

These policies protect the individuals who run the business.

☑ Directors’ & Officers’ (D&O) Insurance

Protects directors from personal liability for decisions made in the course of running the business.

☑ Key Person Insurance

Provides financial support if a founder or critical employee becomes unable to work.

5. Sector‑Specific Insurance

Depending on your industry, you may need:

☑ Construction & Trades

Contractors’ all‑risks, plant cover, tools insurance.

☑ Retail & Hospitality

Shop insurance, stock deterioration, loss of licence.

☑ Creative & Digital

Equipment cover, media liability, IP protection.

☑ Health & Wellbeing

Treatment risk, malpractice insurance.

6. Annual Insurance Review Checklist

Use this to stay on top of your insurance protection and make sure you don’t become underinsured by simply renewing without reviewing:

• ☑ Have your business activities changed?

• ☑ Have you hired staff or contractors?

• ☑ Have you bought new equipment or stock?

• ☑ Have you moved premises or expanded?

• ☑ Are your turnover and wage figures up to date?

• ☑ Are you trading online or storing more data?

• ☑ Do you rely heavily on one or two key people?

• ☑ Are you planning to export or take on larger contracts?

If you tick yes to any of these, your insurance needs may have changed.

7. Why Insurance Matters for Growth

Even when not compulsory, insurance helps you:

• win contracts

• access finance

• protect cashflow

• recover from disruption

• build customer trust

• take on bigger opportunities with confidence

Insurance is a strategic enabler, not just a safety net.