UK SMEs using credit cards to pay their commercial insurance
The financial impact of Covid-19 and a rise in premiums has forced a number of UK corporates to borrow more to pay for business insurance, according to research.
Furthermore, the majority (60%) are using credit cards to fund their insurance-related borrowing.
The study, commissioned by UK-based finance provider Premium Credit, interviewed 291 SME managers and owners in the UK on their use of trade finance.
It found that net advances for commercial insurance increased by 11% in 2020 compared to the previous year. This increase exceeds a marginal increase in the number of policies.
The impact of Covid-19 was cited by 73% of SME bosses as the primary reason for the increased borrowing. A third of firms (33%) have seen their cash reserves decrease during the last year, with 7% saying they have no cash reserves at all.
However, the increased cost of insurance premiums was blamed by more than a third (36%) of respondents.
The research comes at the same time as the UK government announced that it will be ending a credit reinsurance scheme it had set up with the Association of British Insurers to help businesses pay for their insurance during the pandemic on 30 June.
Of those relying on credit to meet their insurance payments, the majority (75%) is spent on vehicle insurance. Other lines that featured prominently include property (52%), employer liability (30%), business interruption (26%), and cyber (22%).
Premium Credit’s research also tracked the impact of underinsurance and found that nearly one in ten (9%) were unable to claim for losses such as property damage due to a lack of insurance, with the average value of these losses equating to about £2,000.
Perhaps the most concerning finding from the research is that of those firms forced to borrow to meet their increased insurance costs, 60% are using credit cards. One in four (24%) are relying on personal or business loans, while 40% are either entering into finance agreements with their insurers or using premium finance providers.
According to Owen Thomas, chief sales and marketing officer at Premium Credit, “it is worrying that so many are relying on credit cards, which can be an expensive way to pay for insurance if you only make the minimum monthly payment”.
Mr Thomas is calling on firms to talk to their brokers about more affordable ways to meet their insurance payments, a view supported by intermediaries.
“[The research] underlines how important credit is in ensuring companies can continue to afford business-critical cover and the role of brokers in supporting firms,” said Steve White, chief executive of the British Insurance Brokers’ Association.
