Two thirds of SMEs underinsured

Not all SMEs will require PII cover but those that do, out of the remaining 3.3 million of the UK’s 5.2 million SMEs, could find themselves uninsured should their clients suffer a financial loss as a result of negligent or poor advice.

The analysis, conducted to support the launch of Direct Line for Business’s Professional Indemnity Insurance product, suggests that only 733,000 SMEs (14%) are considering taking out PII in the next 12 months.

Despite the number of SMEs taking out PII growing by 235,000 – or 14% – last year, without sole traders, there was a significant fall in the number of micro (-15%) and small (minus six per cent) businesses taking out PII policies. Direct Line for Business warns that this is a dangerous prospect because businesses risk financial ruin without the appropriate PII cover.

Gary Holmes, Products Manager at Direct Line for Business, said:

“The number of sole traders with PII has risen sharply over the past year, underlining the importance these entrepreneurs are placing on protecting themselves from the potential knock-on effect of a client suffering financial losses. That said, there are still a large number of businesses who are offering services or advice that don’t have the right cover in place, thus exposing their businesses to huge risks that could cripple their enterprises.

"Without the right cover, providing incorrect advice or losing data could end in financial ruin for an SME. Our recent introduction of Professional Indemnity Insurance not only allows us to offer a product our customers have been asking for, it also means Direct Line for Business has a comprehensive set of small business insurance products to cover our customers’ needs.”

When broken down by industry, Direct Line for Business’ analysis revealed that SMEs in the legal services industry were most likely to have PII, with 88% of businesses taking out insurance. This is followed by financial services (59%) and scientific, technical and engineering research (52%). SMEs in transportation (12%) and retail and wholesale (11%) are the least likely to have PII cover.

Recent research revealed over 320,000 businesses had been affected by poor advice over the last 12 months, underlining the importance for SMEs having suitable insurance cover in place.