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Commercial Insurance for Small Business Market Assessment 2002
Key Note Publications Ltd, January 2002
This Market Assessment report analyses the commercial insurance market for small businesses. Using information currently available, it looks at how insurers are coping with what is an unprofitable and particularly risky element of general insurance.
The report includes an overview of the number and size of small businesses in the UK, and their distribution across the sectors of the UK economy. It highlights the economy's effective division into two: one for the declining manufacturing sector and one for the burgeoning service sector. Growth is being stimulated by government investment in the public sector, while it tries to promote small businesses in socially excluded areas.
The complexities of commercial insurance and the many aspects of business life that it can cover are outlined. The variety of risks that must be considered by small businesses - particularly in an age when litigation is a fast-growing activity - is expanding, and the burdens of increased regulation bear heavy on the shoulders of such businesses.
The trends in insurance for liability and employers' liability are explored, along with the major factors that have contributed to the rise in premiums in 2001/2002. Also covered are the growth in pecuniary loss and property damage insurance. Other sectors include engineering (including computer cover), motor vehicles, legal expenses and credit insurance.
The profitability of these areas of insurance has been poor for many years, while competition between insurers has driven down premiums to a level where insurers have had to rely on their investment returns to cover their losses.
Distribution trends show that independent intermediaries continue to dominate sales of insurance, although the dynamics within this sector are changing. E-insurance is dealt with separately, as this cuts across all channels of distribution and its impact on different aspects of insurance are varied.
In global terms, the UK is a major market in insurance, lying behind only the US and Japan, in terms of premium income. Within the EU, directives are affecting the operation of insurance, in particular, cross-border trading and price controls. The recent launch of the euro is also having an impact cross-frontier trading in this market.
Key Note believes that the 'soft' market conditions have come to an end, and forecasts a rapid hardening of the market as premiums rise to restore insurers' reserves. This `hard' market is expected to continue for the foreseeable future, with small businesses being forced to seek new ways of driving down business risk, if they are to be insured at a reasonable cost.