The UK’s inflation rate is at levels not seen since the 1980’s and sadly, small businesses are not immune to its impact.  As costs continue to rise, many firms will understandably be looking closely at their cost base to see if savings can be made during these uncertain economic times. With this in mind, an insurance broker has a key role to play by ensuring firms have the correct policy in place even if they decide to reduce their cover to save money.


A good example of this is the impact of underinsurance. The soaring inflation levels are impacting prices across all sectors of the economy. The cost of raw materials in the UK is expected to more than treble in 2022, according to the Building Cost Information Service Materials Cost Index. As a result, replacement costs may be much higher than expected following a claim, leaving some firms underinsured.

To combat underinsurance, it’s always advisable to speak with your broker well in advance of your next insurance renewal. You should discuss how inflationary increase could affect your sums insured and ensure that your assets are valued correctly so that in the event of a claim, your policy will respond. Although most policies are index-linked, an increase in the cost of building materials could directly impact on rebuilding costs.  A broker can also help ensure replacement cost estimates for buildings, contents, equipment and business interruption are set at the appropriate coverage levels.

Buying insurance direct

As costs increase, the lure of buying insurance online for small businesses becomes more inviting. Insurance is always an easy and obvious target to save money. However, those firms thinking of purchasing insurance online should think carefully about what they are buying and what is at stake for their business. With a non-advised purchase there could be a greater chance of your business becoming underinsured.

An example of this could be when an insurer repudiates a major claim on the basis of an unfulfilled warranty.  In this scenario a small business may need to contend with months of uncertainty in negotiating with the insurer.  This could drift into years if it results in litigation. Many businesses just won’t have the resources to survive such an extended period of loss of income, clients and reputation. What’s more, many small businesses will need an insurance pay-out paid swiftly following a major incident such as a fire, flood or other unexpected disaster.

The role of an insurance broker is to give small business owners a greater insight and understanding into what the crucial areas of cover are and what sums insured will be correct for their business. Also, a broker’s job is to ensure that insurance cover does deliver and that a policy will perform exactly as expected in the event of a claim.

In these challenging economic times, a broker’s duty and value is to remind business owners of the consequences of underinsurance and more importantly how they can take the right actions in a cost effective and efficient manner.   What’s more, if a business does need to reduce its insurance cover to save money, its vital to engage with a broker to discuss which elements of cover can be reduced and which elements must remain for their ongoing protection.

Jamie Harvey is a director at chartered broker IFM Insurance.