Brokers must better promote their value or risk losing SME clients, particularly the under-40s and women, a new report warns.

It comes at a time of flat business confidence and expected premium rises, according to this year’s Vero SME Insurance Index.

There has been a small drop in SMEs’ use of brokers, from 65% in 2011 to 61% last year, the study of more than 800 business owners and insurance decision-makers shows.

Micro-businesses, with one to four employees, are most likely to buy direct; only 66% use a broker compared with 75% of small operations (five to 19 staff) and 75% of medium businesses (20-200).

The medium-sized business market may be softening, with a fall in broker use from 87% in 2011.

Younger owners of medium-sized businesses are less likely to use brokers, with 60% of 18 to 39-year-olds doing so, compared with 81% aged over 40.

Broker use among under-40s is lower across all SMEs – 44% compared with 61% in the overall market.

“The key question for brokers is how to convey their value proposition and remain relevant to younger business owners as this next generation takes over,” the report says.

“For them, the internet has become the default medium to gather and research information and to transact… [they] need to be given a good reason to do business by means other than the internet.”

The study also reveals different attitudes among men and women.

Women are more likely than men to personally research their insurance needs (58% compared with 44%), use the internet (50% to 42%) and forgo personal contact for a cheaper deal (39% to 30%).

To become more relevant to women, brokers should communicate clear value-for-money benefits, the report says.

Embracing the internet will also help brokers reach women and younger business owners.

Attitudes to insurance have become more relaxed as memories of the 2011 catastrophes fade, the research finds.

Complacency may be on the rise, with 47% of respondents agreeing they only took out some insurance “because [they were] legally obliged to”, up from 35%.

“The need to review the appropriateness of insurance cover becomes more relevant as the top-of-mind awareness of insurance diminishes,” the report says.

Although the events of 2011 increased distrust of insurers, Vero has not found similar sentiment towards brokers.

In 2011, 36% of survey respondents agreed that “you can’t trust insurance companies”, a figure that has fallen to 29%.

Only 18% agreed that “you can’t trust insurance brokers” in 2011, dropping to 17% last year.

The report also covers the impact of predicted price rises.

Some 75% of respondents expect premiums to increase in the coming year, up from 65% last year. Of these, 54% expect the increases to be more than 10%.

“Many SMEs appear to have reached breaking point in terms of what increase in insurance costs they can bear,” the report says.

“There is a dramatic drop in respondents who say they could pay increased costs and/or pass them on to their clients.”

Where insurance is a small component of costs, businesses tend to believe they can absorb premium increases, the report says. But they are less able to do so when the costs are significant.

Insurance costs can affect business decisions on whether to expand into new markets or withdraw from others, Vero says.

Many clients expect to change purchasing behaviour after price rises, such as reducing cover, changing insurer or changing broker, the survey shows.

About 28% of respondents have left a broker in the past five years. The most common reason (37%) was that a price rise was considered too high.

However, 72% have been with their broker for more than five years, which “illustrates the remarkable stability of current broker/SME relationships”, Vero says.

The research identifies three clear SME customer segments: grudge buyers, thoughtful buyers and outsourcers.

Most clients are satisfied and see the benefits of a broker relationship: saving time, providing access to specialist expertise, understanding clients’ businesses, and offering the best prices.

The pressure is now on brokers to communicate these benefits more widely and effectively, Vero says.

However, SMEs that do not use brokers also appear satisfied.

They feel in control and do not see brokers’ services as relevant. Some have not considered using a broker, some do not know where to find one and others say it would be hard to find the right one.

One-quarter of respondents who don’t use a broker believe it would cost more to buy through a broker, while 44% do not want to deal with a “middleman”.

Only 9% of direct buyers think it would be cheaper to use a broker, compared with 19% of broker clients.

To be more relevant to non-users, brokers must move the conversation away from distrust and communicate their value, Vero says.

The study features quantitative surveys of 885 business owners and insurance decision-makers across Australia, followed by in-depth interviews with eight SME respondents from September to November last year.