Study reveals huge increase in SMEs turning to credit to pay for insurance
The number of SMEs using some form of credit to pay for one or more insurance policies has significantly increased, new research1 from the UK’s leading insurance premium finance company, Premium Credit, shows.
Premium Credit’s Insurance Index, which monitors insurance buying and how it is financed, shows 90% of SMEs use some form of credit when they buy insurance compared with 54%2 recorded in last year’s index and 55%3 two years ago.
The average amount borrowed is 65% higher at nearly £1,945 compared with £1,180 last year. Two years ago the amount borrowed was £1,080 and it was £1,130 three years ago4.
More than six out of 10 (61%) surveyed said they have used more credit to help pay for business insurance over the past year with one in eight (12%) saying it is significantly more.
More than two in five (41%) of the firms we surveyed said they are using more credit because of premium increases. But that is down on 51% in last year’s index as premiums are generally decreasing for businesses. Around 28% said they had taken on more credit because credit has become cheaper while 26% blamed the impact of increases in employers National Insurance which came into effect last April. Around a fifth (22%) pointed to the impact of increases in the national minimum wage.
Around two out of three (68%) of SMEs using credit borrowed on credit cards up from 45% the year before while the numbers using personal or business loans rose to 35% from 21% previously. The risks of borrowing on credit cards and loans are highlighted by the research which found 26% of SMEs had defaulted on repayments in the past 12 months.
The table below shows the percentage of SMEs which used credit to buy insurance, which products they used it for and how numbers have changed significantly across the board in the past year.
Premium Credit’s research shows the consequences of being underinsured or cancelling policies. Around two out of five (39%) said they have been unable to claim for damage to property or equipment in the past five years either because they were not insured or their insurance was inadequate. For around 24% of those unable to claim the damage was valued at £3,000 or more.
Owen Thomas, chief sales officer, at Premium Credit commented: “Credit is playing a very significant role in ensuring SMEs can pay for insurance with 90% of firms using some form of credit to pay for one or more policies.
“A major factor is the financial challenges SMEs are facing including tax rises, but firms are also realising that credit is a sensible method of paying for insurance with premium finance and credit from insurers playing a major role.
“The alternative of being uninsured or underinsured comes with a cost as the research shows with significant numbers of SMEs unable to claim for damage and paying the costs themselves.”