Small and medium-sized enterprises (SMEs) in New Zealand are maintaining a strong sense of confidence in their own operations, even as broader economic sentiment remains subdued, according to new research from Prospa NZ. For insurance professionals, these findings signal both opportunities and challenges in supporting the evolving risk and protection needs of the SME sector.
The SME Sentiment Tracker Report, based on a survey of 500 business decision-makers conducted in late 2025, indicates that 92% of SMEs feel either very or somewhat confident about their business prospects over the next year, a notable increase from earlier in 2024. Confidence in the five-year outlook has also grown, with 91% of respondents expressing optimism, up from 85% previously.
Adrienne Begbie, managing director of Prospa NZ, said the economy has faced persistent challenges over the past five years, and many are still anticipating a turnaround. However, a significant number of New Zealand’s SMEs have grown weary of simply waiting for change. “They know the economic challenges are real, but their optimism hasn’t disappeared. Instead, they’re more confident than ever in their own ability to tough it out and succeed. They’ve accepted the new normal and are being pragmatic by focusing on what they can control,” Begbie said.
Profit expectations, operational challenges, and insurance implications
While business owners are backing their own ability to adapt, expectations for profitability have become more cautious. The report shows that 72% of SMEs anticipate profits will either increase or remain unchanged, but 26% now expect profits to fall, up from 15% a year earlier. The proportion of SMEs rating their business health as “good” has also declined, from 62% in October 2024 to 55% in the latest survey.
For insurers and brokers, these shifting expectations highlight the importance of flexible coverage options and proactive risk management advice. As SMEs face tighter margins, there may be increased scrutiny of insurance costs, policy terms, and the value delivered by risk transfer solutions.
Sentiment about the wider economy is less optimistic. Only 45% of respondents expect market conditions to improve in the coming year, while 27% believe there will be no improvement, up from 19% in April. Rising operating costs are the most frequently cited challenge, affecting 51% of SMEs, followed by concerns about revenue and demand (36%), the general economic environment (20%), and workforce issues (11%).
One business owner said, “Rising operational costs affecting profit margins in New Zealand is the biggest challenge facing my business.” Staffing and recruitment remain the largest expense for 17% of SMEs, with government payments and taxes (14%) and utilities and telecommunications (7%) also being significant cost factors.
Financial stability and risk landscape: Key considerations for insurers
These concerns among SMEs reflect broader economic risks identified at the national level. The Reserve Bank of New Zealand (RBNZ) has highlighted ongoing risks to financial stability, citing both international and domestic pressures. In the central bank’s recent Financial Stability Report, Governor Christian Hawkesby said, “Financial stability risks remain higher than in recent years,” referencing global market volatility, high equity valuations, and increased government debt as ongoing concerns. New Zealand’s open economy remains sensitive to global shifts, and some sectors, such as retail and hospitality, are experiencing weaker performance.
For insurance professionals, this context underscores the need to regularly review clients’ risk profiles and ensure adequate coverage for business interruption, liability, and emerging risks. Economic headwinds may also drive increased claims activity or changes in coverage demand, especially in sectors under pressure.
SMEs respond with operational changes - and insurance needs evolve
The research suggests that SMEs are not waiting for external conditions to improve but are instead taking proactive steps to adapt. 34% of respondents plan to adjust pricing, 31% are looking to diversify their offerings, another 31% intend to invest in marketing, and 28% expect to hire additional staff. These figures represent substantial increases compared to earlier in the year, indicating a shift toward more active business management.
Cash flow remains a complex issue, with some improvement noted across the sector. As one respondent explained, “Managing cash flow effectively while ensuring timely payment and operational stability remains challenging.” The share of SMEs with cash reserves covering four to six months of expenses has risen to 26%, while those with more than 10 months’ reserves now make up 18%. However, 28% of SMEs have only one to three months’ reserves, and 17% have less than a month’s buffer.
For insurers and brokers, these operational changes may impact risk exposures and insurance purchasing behaviour. Businesses investing in growth, new staff, or diversification may require updated coverage, while those with tighter cash flow may seek more flexible payment options or tailored advice on risk mitigation.
Access to finance and the role of insurance
Access to finance is also a focus for many SMEs, with one in three planning to seek external funding in the next year. Trust in non-traditional lenders has increased, with 26% now considering alternative finance options, up from 17% in April.
For insurance professionals, this trend may present opportunities to partner with lenders or offer value-added services, such as credit insurance or business interruption cover, that support SMEs’ financial resilience.
Adaptability and resilience: A call to action for the insurance sector
Begbie said New Zealand’s small businesses have long been recognised for their independent approach, and this period has highlighted that trait. “Owners aren’t waiting anymore for the perfect conditions. They’re backing their own judgment and finding their own way to keep growing. Businesses have accepted that these are the conditions they must operate in and they’re getting on with it,” she said.
She added that adaptability is now a key priority for many SMEs, regardless of changes in interest rates or government intervention. “The focus now is on staying flexible, regardless of whether interest rates ease the burden or the government steps in. That’s why we’re seeing business owners actively investing in things that will keep their business moving, like marketing or growing their team,” Begbie said.
SMEs are proactively managing their own destiny, and insurance solutions must keep pace - offering flexibility, support, and expertise to help businesses thrive in an uncertain environment.
