The nationwide study among SME owners and managers found that amongst those who use credit to pay for insurance premiums, nearly one in four increased the amount they borrowed in the past year, with average additional credit coming to nearly £1,300.
Almost three-quarters (73%) of those interviewed who use credit to pay for insurance premiums said the impact of Covid-19 was the main reason for increased borrowing, but premium rises from insurers were also blamed by 36% of firms.
Premium Credit’s Insurance Index also found that SME cash balances are “being squeezed”, with 33% saying cash reserves have fallen during the pandemic, while 7% said their firm has no cash reserves at all. Only 13% of respondents have seen a rise in cash reserves.
According to the report, most of the additional borrowing is going on credit cards at 60%, while 40% are taking finance from insurers and/or are using premium finance. Some 24% have used personal or business loans.
Premium Credit’s data also revealed its premium finance net advances for commercial insurance increased by 11% in 2020 compared with the previous year, despite the number of policies only rising “marginally”.
Its research also showed the impact of not having insurance or being underinsured. Nearly one in ten (9%) firms have suffered damage to property or belongings over the past five years and were unable to claim for this because they didn’t have insurance or because they were underinsured. Average losses as a result were around £2,000.
Owen Thomas, chief sales and marketing officer at Premium Credit said: “SMEs have demonstrated their resilience and adaptability through the Covid-19 crisis and that has included making good use of credit to ensure they can maintain business critical insurance.
“Covid-19 tunnel it is important that they plan for the future and 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. Their insurance broker will be able to advise on how best to fund the appropriate level of cover for their business.”
Steve White, CEO, British Insurance Brokers’ Association added: “Premium Credit’s research underlines how important credit is in ensuring companies can continue to afford business- critical cover and the role of brokers in supporting firms. Insurance brokers can advise on suitable insurance and discuss premium finance should they want to spread the cost of their policies.”