Summary of why business insurance needs an annual review
- Sums insured and limits are fixed when the policy starts. Anything bought, hired, signed or started since then sits outside them unless you say so.
- Only half of UK SMEs reviewed the insurance they hold in the past year, according to the ABI. Aviva found two thirds of commercial properties underinsured, with an average gap of 79% between the sum insured and the rebuild cost.
- Under the average clause a claim is cut in proportion to the shortfall. In the example, £120,000 of cover on £180,000 of equipment turns a £45,000 claim into £30,000.
- The Insurance Act 2015 puts a duty on every business to make a fair presentation of the risk at the start, at renewal and at any change. A careless failure cuts the claim in proportion. A deliberate one voids the policy.
- Employers' liability is compulsory from the first employee, at £5 million, with a fine of £2,500 for every day without it.
- 43% of UK businesses identified a cyber breach or attack last year. 7% had a cyber policy.
Insurance tends to get set up once and then left alone. The premium is paid, the certificate goes on the wall and nobody looks at the schedule again until something goes wrong. That is when the sum insured from two years ago gets compared with what things cost to replace now, or the insurer asks why the new van, the new unit or the new line of work was never mentioned.
This article covers what a normal year does to a policy, how far behind UK businesses have fallen, what the law expects you to disclose and what it costs when you do not. It ends with a review you can run in an hour before each renewal. Every figure is from the source linked at the end.
What changes in a business in a year
A policy is a snapshot. It records what the business looked like on the day the proposal form was filled in, and every figure on the schedule comes from that day. The table shows the changes that happen in most businesses most years, and the cover each one moves.
| What changed | Cover affected | What to check |
|---|---|---|
| Turnover up or down | Public and product liability, business interruption, professional indemnity | Premium and limits are often set on turnover. An indemnity period or limit set on last year's figure may be too low. |
| First employee, or more staff | Employers' liability | Compulsory from the first employee at £5 million. The premium is usually based on the wage bill. |
| New premises, or more space | Buildings, contents, business interruption | The old address may be the only one on the policy. Rebuild cost and contents need a new figure. |
| New equipment, tools or stock | Contents, stock, portable equipment | Sums insured are fixed figures. Anything bought since renewal sits above them. |
| A new or extra vehicle | Motor, goods in transit | Each vehicle has to be on the policy. Any driver cover may not include a new starter. |
| A new service or product line | Public liability, product liability, professional indemnity | Some activities are excluded or need declaring. Advice work usually needs separate cover. |
| A big new customer or contract | Professional indemnity, public liability | Contracts often set a minimum limit of indemnity. Check it against the policy. |
| Staff working from home | Contents, employers' liability | Kit at home may not be covered. Liability for staff applies wherever they work. |
| Card payments or customer data | Cyber | Not usually in a standard package. Needs to be asked for. |
| A director joins or leaves | Directors' and officers' | Cover follows the people named. Companies House changes are not passed to the insurer. |
None of these is unusual. A business that grew 15% in the year, took on two people, bought a van and started doing a bit of design work alongside the installation work has touched six lines of that table without doing anything out of the ordinary. The renewal invitation will arrive with last year's figures on it, and it is easy to sign.
How far UK businesses have fallen behind
Six pieces of UK research from the last eighteen months put a figure on the gap. They measure different things and use different samples, so each is shown with its date and source.
| Source | Date | What it found |
|---|---|---|
| ABI and Public First, Small Business, Big Risk | January 2026 | 1,002 SME decision makers surveyed in August 2025. Only half had reviewed the types of insurance they hold in the past twelve months. 39% of firms with one to nine employees had no employers' liability insurance. 23% of those with premises had business interruption cover. 29% of those using software or cloud services had cyber cover. |
| Aviva Broker Barometer | March 2026 | Two thirds of UK commercial properties underinsured. Average gap of 79% between sum insured and rebuild cost. 68% of brokers saw more claims cut or declined for underinsurance. |
| Charterfields Insurance Gap Report | February 2026 | 87% of sites underinsured on buildings across 373 locations. 83% underinsured on plant, equipment and contents across 95 locations. |
| Premium Credit Insurance Index | January 2026 | One in four SMEs believed they were underinsured in the past year. 35% had cut their cover. |
| Hiscox Global Protection Gap Report | 2025 | 74% of UK SMEs report some underinsurance. One in three had not reviewed public liability cover in three years or more. |
| Towergate Insurance survey | July 2025 | 35% named failing to review policies regularly as the most likely reason for being underinsured. 40% named not understanding the cover. |
Aviva's survey also asked brokers why. Price has fallen from the top of the list of reasons, from 47% to 29%, and lack of awareness has taken its place at 40%. Only 24% of brokers discuss sums insured with their clients regularly, and only 24% of businesses regularly commission a rebuild cost survey. Most of the gap comes from owners not knowing the figure has moved rather than from choosing to save money.
What the average clause does to a claim
Most property and contents policies carry a condition of average. It says that if the sum insured is less than the true value at the time of a loss, the insurer pays the same proportion of the claim as the sum insured bears to the true value. It applies to partial losses as much as total ones, which is what catches people out. A business insured for two thirds of its value gets two thirds of every claim.
Worked example
The average clause on a £45,000 equipment claim
Sum insured kept up to date
- Sum insured
- £180,000
- True replacement value
- £180,000
- Cover ratio
- 100%
£45,000 paid on a £45,000 claim
Sum insured two years out of date
- Sum insured
- £120,000
- True replacement value
- £180,000
- Cover ratio
- 67%
£30,000 paid on a £45,000 claim
£15,000 the business pays itself, on a claim it thought was covered. The ratio is the sum insured divided by the true value, and it applies to partial losses as well as total ones. The figures are assumptions chosen to show the method.
Building costs have gone up a lot since 2021 and most sums insured have stayed where they were. Research cited in Aviva's report puts the average underinsured property at 67% of its rebuild cost, and Charterfields found contents, plant and equipment further behind than buildings. For buildings, the figure the insurer needs is the cost of rebuilding, including demolition, professional fees and current building regulations, not the market value. The two can be far apart in either direction.
Not sure your sums insured still match what you own? Send us your schedule and we will tell you what looks out of date.
Ask us to look at your coverWhat the law expects you to tell the insurer
Since August 2016, business insurance in the UK has been governed by the Insurance Act 2015. Section 3 places a duty on the policyholder to make a fair presentation of the risk before the contract is entered into. A renewal is a new contract, and section 2 applies the same rules to variations of a policy, so the duty arises at the start, at each renewal and whenever the policy is changed. That means disclosing every material circumstance the business knows or ought to know. Section 4 says a business ought to know what a reasonable search of the information available to it would have revealed, and that it is treated as knowing what its senior management and the people responsible for its insurance know. Section 7 defines a circumstance as material if it would influence the judgement of a prudent insurer in deciding whether to take the risk and on what terms.
In practice that covers every line in the first table. A new vehicle, a new address, a new type of work, a rise in turnover and an incident that did not become a claim are all things a prudent insurer would want to know. You have to volunteer them rather than wait to be asked. The Act does protect a business that discloses enough to put the insurer on notice that it should ask further questions, so a short honest list at renewal does most of the work.
Schedule 1 sets out what happens when the duty is not met. If the insurer can show the breach was deliberate or reckless, it can avoid the policy, refuse every claim and keep the premium. If the breach was careless, the remedy depends on what the insurer would have done had it known. If it would not have taken the risk, it can refuse the claim and return the premium. If it would have charged more, it pays the claim in the same proportion as the premium it actually received.
Worked example
A careless non-disclosure under the Insurance Act 2015
Change disclosed at renewal
- Premium charged
- £2,500
- Claim
- £50,000
- Proportion paid
- 100%
£50,000 paid
Change not disclosed
- Premium charged
- £2,000
- Premium it would have charged
- £2,500
- Proportion paid, 2,000 over 2,500
- 80%
£40,000 paid
£10,000 lost for a £500 saving on the premium. This is the proportionate remedy in Schedule 1 of the Act, which applies where the breach was not deliberate or reckless. If the insurer shows it would not have taken the risk at all, it can refuse the claim and return the premium. The figures are assumptions chosen to show the method.
The burden of proving a breach was deliberate or reckless sits with the insurer. The proportionate remedy for a careless breach still leaves the business carrying a share of every claim for the whole policy year, and on a serious loss that share can be more than the business can absorb.
Employers' liability insurance
Employers' liability insurance is required by law from the day a business first employs someone. GOV.UK says the policy must cover at least £5 million and must be with an authorised insurer, which you can check on the FCA register. The fine is £2,500 for every day the business is not properly insured, and £1,000 for failing to display the certificate to staff and inspectors. The only exemptions are a business that employs only close family members, and staff based outside England, Scotland and Wales.
The trigger that catches owners is the first hire. A sole trader who takes on a part-time assistant, a company whose only employee was its director until it hired an apprentice, and a business that uses casual labour for a busy season all cross the line on the first day. Sixty days without cover is £150,000 of exposure to the fine alone, before any claim by the employee. The same policy also needs to reflect staff numbers and pay each year, because the premium is usually based on the wage bill, and our article on what this government has changed for SMEs covers the other costs that move with each hire. The ABI's January 2026 research found 39% of firms with one to nine employees had no employers' liability insurance at all, and the report suggests the true figure is higher.
Cyber cover
The 2025 Cyber Security Breaches Survey, published by the government, found 43% of UK businesses had identified a breach or attack in the previous twelve months. Among medium businesses the figure was 67%. Phishing was the most common type, reported by 85% of those affected. The average cost of the most disruptive breach was £3,550 among businesses reporting a cost. 45% of businesses had some form of insurance that might respond to a cyber incident, and 7% had a specific cyber policy. The ABI found 29% of SMEs using software or cloud services had cyber cover.
Package policies for small businesses often leave cyber cover out, or include it with a low limit. If the business takes card payments, holds customer records or could not trade without its systems for a week, it is a question to ask at renewal rather than after an incident.
The annual review, in twelve questions
This is what a broker or insurer needs from you at renewal, and what the duty of fair presentation expects you to have looked at. It takes about an hour with the schedule, last year's accounts and the fixed asset list in front of you.
| Step | Check | What to do |
|---|---|---|
| 1 | Turnover | Give the insurer this year's actual figure and next year's forecast, not last year's. |
| 2 | Headcount | Count everyone including part-time, casual and apprentices. Check the employers' liability certificate is displayed. |
| 3 | Premises | Every address you trade from, store stock at or keep vehicles. Check the rebuild cost, not the market value. |
| 4 | Contents and equipment | Add everything bought in the year at replacement cost. Remove what has gone. |
| 5 | Stock | Use the peak level, not the average. Say if the mix has changed. |
| 6 | Vehicles and drivers | Every vehicle, every driver, and what the vehicles are used for. |
| 7 | What you do | New services, new products, new sectors, work abroad, work at height, anything you did not do last year. |
| 8 | Contracts | Any customer contract that sets a minimum level of cover. Check your limits meet the highest. |
| 9 | Where people work | Home, client sites, shared offices. Where kit is kept overnight. |
| 10 | Data and payments | Card payments, customer records, cloud systems. Ask about cyber if you have not. |
| 11 | Business interruption | How long it would take to trade normally after a fire or flood. The indemnity period should cover it, and twelve months is often too short. |
| 12 | Claims and incidents | Anything that happened in the year, claimed or not. Near misses count as material. |
Write the answers down and send them to the broker or insurer with the renewal, whether or not the form asks. A dated list of what has changed is the best evidence a business can have that it made a fair presentation, and it takes the question of what was disclosed out of the argument if there is ever a claim.
Would you like someone to go through your renewal with you before you sign it?
Ask us to look at your coverChanges between renewals
The duty applies between renewals too. A material change part way through the year, a new premises, a new activity, a large new contract, a vehicle, should be notified when it happens, because section 2 of the Act applies the duty of fair presentation to variations of a policy as well as new ones. Insurers can usually add cover part way through the year for an additional premium. The alternative is to find out at claim time that the new unit was never on the schedule.
Three changes are worth a call on the day rather than a note at renewal. Taking on your first employee, because employers' liability is compulsory from that day. Moving premises or opening a second site, because the address is the basis of the property cover. And starting any kind of work you have not told the insurer about, because activities are often listed on the policy and anything outside the list is uninsured.
What should an owner do before the next renewal?
- Put the renewal date in the diary a month early. The invitation arrives two or three weeks before. A month gives time to get figures and ask questions.
- Run the twelve questions above. With the schedule, the accounts and the asset list to hand. An hour is usually enough.
- Get a rebuild cost for any building you own. A desktop assessment is cheap. Aviva found only 24% of businesses do this regularly.
- Check every contract for an insurance clause. Customers often set minimum limits, and the highest one is the one you need to meet.
- Send the insurer a written list of what changed. Date it. Whether or not they asked, it is your evidence of a fair presentation.
- Ring them when something changes mid-year. A new hire, a new site, a new line of work. Do not wait for the renewal.
What you pay for insurance is the premium. What you can lose is the part of a claim that is not paid because the policy described a business that no longer exists. Our article on how many months of cash reserve to hold covers what a shortfall on a claim does to a business, and our Budget 2026 article covers the wage and rates changes that affect next year's figures.
Questions owners ask
How often should a business review its insurance?
At least once a year, at renewal, and again whenever something material changes in between. Hiscox suggests a review sooner than a year if turnover, headcount or operations grow by 20% or more. The ABI found only half of UK SMEs had reviewed the insurance they hold in the past twelve months, and Hiscox found one in three had not reviewed public liability cover in three years.
Do I have to tell my insurer about changes in my business?
Yes. The Insurance Act 2015 places a duty of fair presentation on business policyholders. Before a policy starts, at renewal and when it is varied, you must disclose every material circumstance you know or ought to know after a reasonable search. A circumstance is material if it would influence a prudent insurer's decision on whether to take the risk or on what terms.
What happens if I forget to disclose something?
It depends on why. If the insurer shows the breach was deliberate or reckless, it can avoid the policy, refuse all claims and keep the premium. If it was careless, the remedy is proportionate. If the insurer would have charged more, it can reduce a claim to the same proportion as the premium it actually received, and if it would have declined the risk it can refuse the claim and return the premium.
What is the average clause?
A policy condition that reduces a claim in proportion to any underinsurance. If your sum insured is 70% of the true value, the insurer pays 70% of a claim, including partial losses. Aviva's 2026 broker survey found two thirds of UK commercial properties underinsured, with an average gap of 79% between the sum insured and the rebuild cost.
Is employers' liability insurance compulsory?
Yes, from the day you first employ someone. GOV.UK says the policy must cover at least £5 million and be with an authorised insurer. The fine is £2,500 for every day you are not properly insured, and £1,000 for not displaying the certificate. You do not need it if you only employ family members or people based outside Great Britain.
Does working from home change my cover?
Often. Equipment kept at employees' homes may not be covered under a premises policy, and employers' liability still applies wherever staff work. Tell the insurer where kit and people are, and check the policy wording on portable equipment and home working.
Does my business need cyber insurance?
The 2025 Cyber Security Breaches Survey found 43% of UK businesses identified a breach or attack in the previous twelve months, with an average cost of £3,550 for the most disruptive one among those reporting a cost. Only 7% of businesses had a specific cyber policy. If you take card payments, hold customer data or would struggle to trade without your systems for a week, ask about it at renewal.
Keep reading
Sources
- Employers' liability insurance (GOV.UK). The £5 million minimum, the £2,500 and £1,000 fines and the exemptions.
- Insurance Act 2015, Part 2 (legislation.gov.uk). Sections 3, 4, 7 and 8 on the duty of fair presentation.
- Insurance Act 2015, Schedule 1 (legislation.gov.uk). The remedies for deliberate, reckless and careless breaches.
- Cyber Security Breaches Survey 2025 (GOV.UK). The 43%, 67%, 85%, £3,550, 45% and 7% figures.
- Small Business, Big Risk, tackling SME underinsurance (ABI and Public First, January 2026). The 1,002 sample, half reviewed, 39%, 23% and 29% figures.
- Global Protection Gap Report 2025 (Hiscox). The 74% and one in three figures and the 20% growth rule.
- Aviva Broker Barometer, March 2026 (Insurance Business). Two thirds, 79%, 68%, 40%, 29%, 24% and 67%.
- Insurance Gap Report 2026 (Charterfields). The 87% and 83% figures.
- Premium Credit Insurance Index, January 2026 (Insurance Post). One in four and 35%.
- Towergate Insurance survey, July 2025 (Insurance Business). The 35% and 40% figures.
This article is general information for owners of UK SMEs. The figures in the worked examples are assumptions chosen to show the method, and your own will differ. Policy wordings vary, and the remedies under the Insurance Act depend on the facts. Nothing here is legal, financial or insurance advice. Speak to a regulated broker or adviser about your own cover.
