As of 2025, more than 21 million applications for new small businesses have been filed in the U.S. But behind this growth lies a serious vulnerability: underinsurance. Just 13% of small business owners with insurance coverage feel fully prepared for risk.
This protection gap should be a wake-up call for insurers. Small and midsize enterprises (SMEs) are a rapidly growing segment, yet many remain underprotected, leaving them both vulnerable and underserved. For carriers, this is an opportunity to support a critical part of the economy while capturing growth.
But closing this gap demands a shift in strategy. Insurers must rethink how they engage small businesses, delivering solutions that are seamless, timely, and integrated into the systems SMEs already use to run their operations.
Insurers that act now can turn this unmet need into a growth engine and position themselves as trusted partners in an expanding market. Wait too long, and you risk a generation of business owners moving forward without you.
Why traditional models are failing SMEs
Consider a family-run coffee shop. For years, business has been steady and incident-free, so insurance feels optional — until a small electrical fire forces the café to close for three weeks. Without coverage, the owners pay out of pocket for repairs while losing revenue, and what once seemed like a "low-risk" business suddenly faces a financial crisis.
This story is not uncommon. Many SMEs put off purchasing insurance beyond the minimum required because the process feels inaccessible. Policy language is dense and full of jargon, leaving owners unsure of the difference between general liability, professional liability, and workers' comp. Nearly 70% of small businesses report struggling to understand coverage limits, leading to insufficient protection from the start.
Traditional distribution models compound the issue. Legacy carriers have established reputations that garner SME trust, but often rely on outdated, paper-heavy processes that feel inaccessible to busy business owners. Newer digital-first carriers offer sleek self-service platforms, yet many lack the credibility of heritage names. The result? SMEs are left without coverage that feels both reliable and convenient.
This disconnect doesn't stem from disinterest. In fact, 82% of small business owners say insurance coverage for their business is extremely or very important for their operations. The demand is real, but current products and channels don't meet the realities of SME size, budget, and needs.
Insurers have an opportunity to redesign coverage to reach businesses that traditional models have left behind. A digital-forward, personalized strategy will meet SMEs where they are by simplifying the path to purchase while building trust and long-term loyalty.
Three ways carriers can close the SME protection gap
SMEs remain underinsured because the insurance buying process often works against them. Policies are hard to compare, language is overly complex, and support isn't built for fast-moving businesses with limited resources.
Carriers that remove these friction points are better positioned to meet SME expectations and capture a largely underserved market. Here are three strategic moves that can help make it happen.
1. Get in on the ground floor of embedded insurance
Embedded insurance meets business owners at the exact moment they need it, delivered through the tools they already rely on, like accounting software, e-commerce checkouts, payroll platforms, and registration sites.
Rather than requiring a separate search or offline process, coverage options appear contextually, right where decisions are being made. This reduces friction and reframes insurance as a natural part of operations, making SMEs more likely to see its value and take action.
The opportunity is significant: Embedded insurance is projected to generate over $70 billion in gross written premiums by 2030. Investing now will position you at the center of how SMEs evaluate and manage risk.
2. Tailor communications to real business needs
Even when insurance is embedded at the right moment, the message still needs to resonate. Many SMEs don't know where to start when it comes to shopping for policies, and broad, generic messaging doesn't help. Businesses face industry-specific risks, so one-size-fits-all offerings leave owners unsure whether coverage really applies to them.
AI and data analytics are helping insurers change that. When connected to platforms that small businesses already use to manage finances, payroll, or HR, insurers can access real-time signals to tailor outreach based on how each business actually operates. A freelance graphic designer may benefit from professional liability coverage, while a growing food truck fleet is more concerned with commercial auto and workers' comp.
Personalization also helps business owners understand why coverage matters. When SMEs see that you understand their unique risks, insurance becomes less of a generic add-on and more of a practical safeguard for the business they've worked hard to build.
3. Balance digital tools with human connection
Even with embedded distribution making it easier to access coverage, trust is still earned through human connection. SMEs need the flexibility to start online and pivot to an advisor when questions or concerns arise.
Routine tasks like requesting certificates of insurance or updating information should be fast and self-service. But when it comes to claims or complex purchases, SMEs should have easy, immediate access to licensed advisors who can provide personalized, empathetic support.
Making human interaction a built-in feature strengthens SME confidence and drives long-term loyalty.
How to own the SME protection opportunity
Closing the protection gap is a win-win: Small businesses get the protection they need to weather setbacks, while insurers tap into one of the most dynamic and underserved markets.
To seize the moment, carriers must focus on embedded offerings that deliver personalized service. This ensures coverage aligns with the real, current needs of small businesses while remaining accessible and trustworthy.
SME growth shows no signs of slowing. Now is the time to rethink how protection is delivered, move beyond outdated models, and earn lasting trust from the entrepreneurs powering the next wave of economic expansion.
