State of the nation: small business update 2023

• Small businesses are grappling with higher wages, talent shortages and fatigue
• Many business owners are exploring new tools like AI to relieve their pressures
• Business owners appreciate the value a great insurance broker provides

Small businesses are juggling many balls, amid rapidly changing economic conditions. Severe talent shortages, cash flow pressures and fatigue are just some of the different challenges they are managing.

This means business owners can wear many different hats – finance manager, HR leader and chief technology officer are just a few. While many enjoy the variability and having complete oversight of their business, insurance is one aspect of their operations they are often happy to outsource.

Business owners appreciate the value of an experienced and switched-on broker, and are looking to build a trusted and long-term relationship with their broker partner. This is why it’s a good idea to keep across how SMEs are thinking, the issues they’re facing and how they are approaching their insurance program.

Insights from an expert

Ross Cameron is the Managing Director of Cameron Research. For more than 30 years, Ross has personally conducted thousands of interviews with small businesses owners about how they are responding to the ever-changing operating environments.

With his finger on the pulse of what business owners are thinking and feeling, his most recent findings are especially telling and provide important insights for insurance brokers. According to Ross’s research, here are some of the key issues facing small businesses today.

Navigating the post-COVID return to the office

After the shift towards working from home during the pandemic, businesses are struggling to get employees back to the office, even for a few days a week.

“A lot of business owners dislike working from home. They want to get the band back together in the office,” says Ross.

This is just the tip of the iceberg of the new HR-related challenges facing business owners. If they don’t offer flexible working arrangements, it can impact their ability to retain talent. Employees will simply look for a job that allows them to work from home, if their current employer isn’t willing to make these adjustments.

Flexibility is only one aspect affecting employee retention in small businesses. Business owners are also needing to increase wages to remain competitive and fill vacant roles. One of Ross’s interviewees advertised a position as a reception team leader for many months, without a single application.

“Of all the problems this business owner thought she’d have, finding somebody to work on reception wasn’t one. Finding talent is one of their (business owners) biggest pain points.” In another of his interview subject’s words, “we don’t have a problem with customers or clients, we just have a problem with employee attraction and retention.”

While there may be no quick fix for this, business owners are encouraged to explore how new technologies, such as artificial intelligence (AI), for example, ChatGPT, can help automate and streamline their processes to take the pressure off when it comes to managing HR challenges.

Cashflow remains king

Business owners tell Ross their three biggest challenges are: cashflow, cashflow and cashflow. “This has implications for how you package what you sell, position it and finance it,” he says.

Cashflow is especially tricky to manage for seasonal businesses – for example, events companies for which the winter months tend to be slower. It’s vital for firms in this situation to put cash aside during busy periods so there’s enough liquidity in the business to pay bills during quiet times.

Not enough time in the day

Managing the sheer volume of work is one of the most difficult hurdles small business owners need to jump. Ross says, “the last three years have been relentless and there’s always something going on. There’s always a change they have to manage.”

In one of Ross’s subjects’ words, “it’s more than a nine-to-five job. It’s all day. There’s just so much work involved in responding to emails, replying to clients, doing the accounts, paying wages and organising tools and materials.”

Technology can go a long way to addressing this. As one remarked, “I think AI is going to change the world. It's going to provide opportunities for those who embrace it, some of which we can't imagine yet.”

Insurance brokers add real value

Against this backdrop, business owners say insurance is one aspect of their operations they can leave in the hands of experts – but they are looking for a particular type of relationship.

“They want someone who is responsive and accessible. Business owners operate like this in their own firms and that's what they're looking for from their partners. They want to deal with people who espouse the same service values they do,” says Ross.

Business owners are prepared to pay a premium for a superior service, and they want a pain-free, turnkey solution.

“What they are looking for from their broker is someone who can simplify the process of finding the right insurance. They also want a broker who can identify the right cover in an environment in which risks are rising,” says Ross.

From his research, Ross gives an example of a broker who had a long-term, existing relationship with a client, but who did not correctly manage the business’s risk. In this case study, the policyholder was insured as restaurant, which wasn’t the right categorisation as the business was a pub. This meant that it wasn’t covered for aspects such as live music and had the business owner made a claim, the policy may not have paid out.

This wasn’t discovered, however, until the business formed a new relationship with a broker, who subsequently identified this issue and corrected it. While the new policy may be more expensive, the owner has more confidence he’s properly covered.

“Business owners may understand their business and its risks, but may not fully understand what's covered under their policy. A good broker does, and knows how to deal with claims,” says Ross.

Brokers own risk

Ross’s research reveals that while business owners are becoming more attuned to risk, many are happy to pay a premium for insurance purchased through a broker.

As one owner explains, “our business is less cost conscious now and we are probably more service conscious. I also know when I have a claim, my broker will deal with it. That's why I use a broker rather than going direct.” In another’s words, “when you're feeling most vulnerable, it’s the insurance broker who rides in to save the day.”

The level of service they receive is paramount and many business owners put a premium on the personal approach their broker offers. As one says, “90 per cent of our world is automated, so it's nice to have face-to-face or over-the-phone conversations with someone you know.”

Over time, many brokers become more than just a business partner to their clients. Says one business owner, “we met our broker through a networking group, and she has become a friend. She does all the racing around comparing policies, then presents us with three or four options and the different limits they cover and their conditions. Then we select the right one for our business.”

Ross emphasises how important high service standards are to small businesses. “There must be an element of human interaction so clients don't feel like they're just another number, because the risk is they will go direct.”

Ross also explains that there is a segment of the small business market who do buy insurance online. These are generally micro businesses with only limited insurance needs, however “once they get to a certain point, they do need the firepower a broker offers. That's where you come in.”

Access to the right advice is crucial when it comes to policies such as directors’ and officers’ liability insurance. It’s essential these policies give small businesses the right cover, so that in the event of a claim, they are protected.

Looking ahead

As for the future, small businesses are under pressure and it’s unknown how the higher interest rates will affect their operations long-term. Business owners are concerned the economy is slowing and are worried how this will impact their insurance and thinking around their risks.

In this environment, brokers offer more support and value than ever. Businesses remain willing to pay a premium price for a superior service offered by a broker with whom they have a long-term relationship.

QBE is here to help. Talk with your Relationship Manager today about how we can support you with great products for all your small business clients.