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After the shock - insurance in 2021 and beyond

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After the shock — Insurance in 2021 and beyond 12 SME insurance: Serving the modern-day business The majority of the world's businesses are SMEs – defined as organisations with fewer than 250 staff. In the UK SMEs make up 99.9% 22 of all private sector businesses. For commercial insurers, therefore, small and medium sized enterprises represent a key target group. Whilst the more complex commercial lines policies generate large premiums, SME insurance products make up a significant proportion of policies in force. The success of these smaller businesses is heavily correlated to the health of the economy. A growing economy tends to signify improved business performance, and – more relevant to current economic conditions – vice versa. According to OECD 23 data global GDP fell by 4.2% in 2020. This only tells half the story, however, as global GDP is projected to rise by around 4¼ per cent in 2021 and a further 3¾ per cent in 2022. Naturally some businesses have already closed their doors for the last time, and others will fail to recover from the initial downturn. But, for those that do survive – and the new entrants that ride the wave of economic growth – the future looks positive. Sustained economic growth will provide SMEs with an environment to thrive. The face of retail is also changing, meaning new types of SME are emerging as, consequently, are new risks. One major change is the rapid growth of online B2C retail – a trend that has accelerated due to COVID-19. According to the Digital 2020 report from Hootsuite 24 the UK B2C e-commerce market grew by 11% between 2018 and 2019, accounting for 19% of total retail spend by the end of the year. This trend has accelerated through 2020; the Office for National Statistics 25 reports that internet sales as a percentage of total retail sales in the UK soared to 36% by November 2020. With the growth of online retailing, cyber-attacks are becoming a growing concern for businesses, especially as the volume of personal data held grows. The emergence of the gig economy is also changing the face of the SME market. As app-based platforms such as Uber and Deliveroo have grown in popularity, so too has the number of people working for such organisations. A study undertaken by the Foundation for European Progressive Studies and University of Hertfordshire and cited by IBISWorld 26 indicated that the number of UK adults working for online platforms at least once a week rose from 4.7% of the adult population (2.3 million people) in 2016, to 9.6% (4.7 million people) in 2019. Personal vehicles are therefore being used for business purposes, and the distinction between personal and business risks become blurred. In the face of a challenging and changing landscape, SME insurance providers are faced with the task of providing relevant cover to businesses that have – in many cases – seen significant cashflow shortages throughout 2020. Add to the mix the fact that InsurTechs are making increasing inroads into the market and we have an environment whereby SME insurance brands are struggling to see the wood for the trees. There are a few trends that I can see emerging which will help to provide innovative insurance organisations with a competitive edge. 22 UK SME Insurance: Competitor Dynamics 2019, GlobalData 23 OECD Economic Outlook, Volume 2020 Issue 2 24 Digital 2020 (UK report), Hootsuite 25 https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi 26 The Future of the Gig Economy, IBISWorld

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