The current cost-of-living crisis feels different from previous economic challenges, says Colin Cunningham, National Client Development Leader, Trade Credit, at insurance broker Gallagher. Amid inflationary pressures there is supply chain disruption and labour shortages in impacting many sectors.

In June 2022 the Chartered Insurance Institute (CII) reported the cost-of-living crisis was already causing a significant number of consumers to change the way they manage their money. Most were shopping around for cheaper protection policies and cutting back on their spend.

Businesses are also taking action to keep their finances in the best possible shape – when cash flow is the lifeblood of any organisation, protecting it is a sensible step.

But spending less, reducing or even cancelling some cover could compromise future financial resilience or leave businesses without a safety net. Using cyber insurance as an example, research from GlobalData published in June 2022 revealed 29% of companies with fewer than 250 staff cancelled their cyber insurance policies last year as part of an effort to cut costs.

Yet a government report released in March 2022 found cyber-attacks are becoming more frequent, with almost one in three businesses and a quarter of charities experiencing cyber breaches or attacks at least once a week. By trying to save money and reduce insurance coverage, businesses could end up paying more in the event of a loss or attack.

As business threats increase, it’s important to keep on top of what they mean for finances. Risks can be transferred to third parties in the form of insurance. They can also be managed to some extent – working on some form of planning and budgeting can help businesses assess the degree of financial risk being carried, for example.

So, what could businesses consider doing to mitigate the risk of being left short if the worst happens?

In a competitive marketplace, it’s not always easy to tighten payment terms to support cash flow, says Colin. But continuing to review or extend payment terms offered to customers is an option – and this could be supported by a range of credit insurance solutions available to businesses, he says.

It’s also important for businesses to access up-to-date information about the financial position of their debtors/customers if they can. Where that’s not possible then perhaps access to proprietary information and credit insurance solutions is worth considering.

Where there’s a risk of non-payment, providers offer several solutions. One option is single invoice cover, as Colin explains. Unlike traditional credit insurance, this solution doesn’t require you to insure your entire turnover/portfolio. You can pick and choose which invoices to cover, with each quote based on your specific customer’s risk profile as well as the amount owed.

Alternatively, you could opt for protection across an entire portfolio. Any of these options could help to protect or minimise exposure, while also giving access to vital information.

Cash flow is key at all times, but protecting it is especially important now when everything is being squeezed.

Credit insurance is a discretionary spend but it’s one of the most important forms of insurance in terms of the lifeblood of a business.

In simple terms, any business raising an invoice and offering open credit terms, whether it’s in seven days or beyond, has an exposure to non-payment, and the impact on the balance sheet could be critical subject to the size of the exposure.

In an ever-changing market like this, says Colin, businesses can be proactive by keeping on top of their insurance programmes over the next 12 – 24 months. Making sure they have the most comprehensive cover, not just the cheapest, could be key for SMEs moving forward.

Is your provider introducing a payment break, as many did during the Covid-19 pandemic for members experiencing financial difficulties? Some insurers are launching more value-based or ‘essential’ products as well as extending premium deferrals. Others are preparing to help customers in specific financial difficulties.

Shop around for a better deal – don’t just accept renewals – and do your research. What should you expect from your insurer? Matthew Connell, Director of Policy and Public Affairs at the CII, has said: “Consumers want confidence that the insurer will pay out, an easy way to do business, rewards for loyalty, an appropriate level of protection offered by a policy, and to know claims will be paid quickly with respect from the insurer.”

If you’re a member of a business representative body, it could help you improve your understanding of how the insurance industry works and where to find support. The Federation of Small Businesses (FSB), for example, wants better access to affordable insurance for its members. It is lobbying for the insurance industry to use “plain and intelligible” language, to help SMEs receive quality products that are value for money.

The FSB also suggests businesses be proactive in understanding the changing risks they face. Whether it’s terrorism, cybercrime or climate change, awareness of the associated risks and effective resilience measures could make a difference. Some insurers are educating their clients on identifying and mitigating cyber risks to reduce the chance of a human error-induced breach. Is yours? Check out our security hub here.