In an era of increased business risk, the owners, CEOs and founders of small-medium enterprises (SME) and technology startups are falling short in both evaluating these risks and showing the right acumen for risk management.
According to a report released by Embroker, a digital business insurance brokerage, these owners’ and founders’ perception of business risk is not aligned with how they manage and transfer that risk. They acknowledge critical business risks like labor shortages and product malfunctions, yet only 22% have read and understood all of their insurance policies and half are relying on their brokers to sign up for coverage.
For the report, Big Risks for Small Businesses, Embroker surveyed more than 500 SME owners and CEOs and tech startup founders in August 2021.
“While many SME owners and startup founders have been experiencing strong growth and financial backing in the past year, modern day risks including cyber attacks, supply chain breakdowns, and remote workforce issues can stop progress in its tracks. This means companies need to constantly evaluate risk and protect their business,” said Matt Miller, Embroker CEO.
The survey found misaligned priorities on the part of owners and founders who said their top three risks are around reputational harm to the company or brand (43%), product or equipment malfunction (42%), and labor shortage or overworked employees (37%). But, when asked about the areas of focus on their overall business, they identified a different set of issues: customer retention and growth, generating demand and managing costs.
The survey found that most business owners are aware of risks and concerns when it comes to their business, however very few (22%) have fully read through their policies or understand the cost behind their policy, with 56% of businesses saying they do not know the exact cost of their business insurance.
Miller said business insurance is a “critical element in a company’s growth strategy, allowing a company to effectively transfer risk and ensure that unforeseen events don’t impede their growth” – it is not a decision and process a business can put on “autopilot.”
The authors of the report say owners and founders could be doing more to stay on top of their risks and act on those changes as they evaluate their business insurance renewal. Some owners and founders are engaged: the report shows half of owners and founders rely on the expertise of a broker to sign up for coverage, and 25% rely on the broker to fully research and price out their options. Others are less engaged: 1 in 5 admitted to not knowing how their insurance purchases are handled.
When it comes to policy renewals, though, it’s clear that owners and founders need to have more rigor in their process, according to the report. Almost one in three (29%) SME owners allow their insurance to auto-renew without making changes, while 74% of tech founders either engage with a broker or have someone internal to assess their needs and options upon renewal.
According to the survey, owners’ lagging knowledge of their policies and risk assessments is leaving them vulnerable, especially to the cyber risk of data breaches and ransomware attacks. Both owners (46%) and tech founders (57%) fear they don’t have sufficient coverage in the event of a ransomware attack. But their concern about this risk remains low: 63% of SME owners believe they are unlikely to face a data breach or ransomware attack.
Technology firm founders, on the other hand, tend to be more aware of cyber risks than other industry business owners, with 58% of tech founders saying they believe they are likely to face a data breach or ransomware attack. However, tech founders are still not securing coverage, with only 34% having cyber policies.
“The data shows that while some companies feel that business insurance is like a tax or simply a checklist item, no business should have to suffer a negative impact to their business for risk that is or could be transferable,” continued Miller.
Miller said his firm aims to change these perceptions and show how business insurance provides value to a company of any size, but especially to the inherent risk-takers that are business owners, founders and leaders. “To truly be successful, these owners and founders need to embrace transferable risk as a part of their growth strategy,” Miller contends.
A digital broker founded in 20t5, Embroker focuses on industry-specific coverage for directors and officers, employment practices liability, cyber, and professional liability. Through Embroker Access, Embroker provides partner agencies and wholesalers access to its insurance products for their customers.
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