Artificial Intelligence (AI) is taking root in all types of industry and areas of business. From robotics to natural language processing, it offers a huge range of capabilities that can drive innovation and efficiency.

However, there are mixed feelings about AI among SME owners and financial directors recently surveyed on behalf of NIG Insurance^[1]. While on the one hand this emerging technology is seen as the key opportunity for growth into 2025, it’s also widely regarded as a challenge.

We look at the transformational potential of AI for business and how to manage the risks associated with it. 

At a Glance

• 63% of SMEs are planning to invest in AI in 2025
• Businesses see AI as a risk as well as a benefit
• NIG tools can help build resilience against potential AI threats

How AI can benefit SMEs

As the number one business opportunity for 2025, AI is ahead of expansion and diversifying in our survey.

Such is its potential for growth that more than three in five UK SMEs (63%) are planning to invest in AI in the next 12 months.

Larger companies with 50-250 employees are the most committed, with 77% saying they intend to fund AI development . Perhaps not surprisingly, the sector that sees the most opportunity for growth is IT and telecoms, followed by finance and manufacturing.  

Some of the main opportunities offered by AI include:

Increased efficiency and productivity

AI excels at automating repetitive tasks, improving efficiency and minimising the risk of costly mistakes. In accounting, for example, it can effortlessly prepare tax returns and cut out human auditing errors. In manufacturing, AI can speed up production processes and order new materials when stock runs low. Put simply, it remembers so you don’t have to.

But reliance on AI and robotics can lead to vulnerabilities, particularly if these systems break down or experience downtime because of supply chain disruptions. Lost time is lost revenue. Which is why it’s so important to have measures in place to mitigate against the financial impact. Our Commercial policies include business interruption insurance, which may provide compensation for loss of income if operations are disrupted due to unforeseen events.

Enhanced customer experience

AI-powered chatbots and virtual assistants can provide round-the-clock support for your customers, whether answering queries or making bookings. By responding in real-time, customers aren’t kept waiting, leading to better satisfaction levels.

AI can also offer a more customised experience. For example, an online retailer can use it to analyse a customer’s purchase history and browsing habits to recommend products they’re likely to be interested in. For small businesses, this type of personal service can be invaluable.

But the quality of AI output is only as good as the input data. As such, AI systems must be trained and monitored carefully to make sure they’re not giving incorrect or discriminatory results. If they are, it’s possible they could lead to liability claims. 

Better business resilience

Businesses always need to be prepared for the next crisis. AI’s ability to monitor vast quantities of data in real-time can provide early warnings of potential disruptions and vulnerabilities. For example, supply chain bottlenecks. This information can then be used to take action to minimise the impact of the disruption. It could even give you a head start if you need to temporarily shift your entire business model quickly, as was the case for many during the pandemic.

As a back-up to AI, our Business Continuity Plan can help you develop a strategy to recover from disasters quicker.

Challenges of AI for SMEs

While AI has several benefits, it’s also seen as a key threat for UK SMEs. Nearly a quarter (23%) have it in their top five risks over the next year.

Some industries see AI as even more of a threat, with 55% of people in senior roles in the arts and culture sector listing it as their number one concern. Finance and IT business owners are also more worried about it than their peers in other industries.

Overall, younger business owners and financial directors (aged 25-34) are more likely to regard AI as a key risk in the next 12 months, all putting it in their top 3 (30%).

Challenges posed by the rise of AI technology include:

Cost and budget constraints

SMEs typically have more financial limits than larger organisations. But committing to AI often requires significant initial investment. You have to think about which hardware and software products are needed, as well as how your systems are going to be maintained and whether you need to hire any new staff.

You also need to consider who is ultimately responsible for your AI strategy. Accountability is vital as it directly impacts company reputation, customer trust, legal liability and ethics. 

Data privacy

AI requires vast amounts of information to learn and improve. But this raises concerns about data privacy and security. When handling such large volumes of personal and financial data, businesses must ensure they’re compliant with GDPR (General Data Protection Regulation).

You should carry out data protection impact assessments for AI platforms. If systems aren’t secure, this could lead to breaches of sensitive information, resulting in hefty fines. NIG’s Cyber Cover is one way to help mitigate the adverse impacts of security breaches or AI system failures.

Skills gaps

Many SME owners and employees feel they lack the knowledge and expertise required to get the most out of AI. As well as grappling with complex regulatory issues, many businesses simply don’t have the in-house technical skills required.

Staff with AI expertise are in high demand so, for many SMEs, bridging the skills gap means investing in retraining or upskilling existing staff.

If you have any questions about staff training, compliance or any other employee issue, our Ask the Expert app which comes as part of Risk Assist gives you access to our panel of HR and health and safety professionals.

Source

^[1]Sticky/Censuswide SME survey conducted between 23/08/24 and 02/09/2024. Data was collected from 501 business owners and financial directors in UK SMEs excluding the hospitality sector (18+)

Source: Sticky/Survey Money NIG Broker Survey -109 brokers