Oct 21, 2025

risks, according to Counterpart's annual Small Business Insights Report, which surveyed more than 300 business leaders nationwide. While business confidence is driving an uptick in hiring, and 77% of respondents are ‘very confident' in their understanding of employee-related risks, more than a third faced employee lawsuits last year. Litigation is bigger, costlier, and less forgiving than in years past. Small businesses that fail to expand their coverage, monitor exposures, and embed preventive practices into their operations risk becoming tomorrow's cautionary tales. The disconnect between business optimism and risk exposure is reshaping how small businesses navigate growth in 2025. Million-Dollar Lawsuits Surge as Half of SMBs Gamble Without Coverage While 71% of the leaders claim they're "very confident" in their insurance protection, that confidence often masks exposure gaps. More than one in three SMB leaders surveyed faced employee lawsuits in the past year, yet only 58% carry employment practices liability insurance, and only 42% have directors and officers coverage. Legal battles are also becoming more severe: lawsuits costing over $1 million surged fivefold year-over-year, rising from 1.4% to 7% of reported cases by survey respondents. The data reveals a stark new reality where just one uninsured claim can be the difference between sustained growth and sudden insolvency. The Tariff Time Bomb Despite maintaining record optimism about their business prospects, SMBs face a complex economic landscape. Inflation remains the biggest challenge for 68% of the respondents surveyed, followed by tariffs at 62% and supply chain disruptions at 44%. As economic policies such as tariffs continue to shift, nearly two-thirds of respondents believe a recession is possible within the next 12 months and are preparing accordingly. “Small businesses are walking a tightrope between unprecedented opportunity and escalating risk,” said Tanner Hackett, CEO of Counterpart. “Many are adapting to the new challenges by embracing AI, shifting back to an office-centric culture, revising their hiring strategy, and updating insurance coverage. We continue to witness the incredible resilience of small businesses, even as their risk exposures grow more complex by the day.” The Next AI Frontier: Main Street Small businesses aren't afraid of AI; they're operationalizing it faster and more pragmatically than many large enterprises. Ninety-two percent of respondents have now integrated the technology into their operations, a dramatic shift from 2023, when only one in five respondents used the tool. Small businesses have discovered AI's real power as a productivity multiplier. Seven in ten respondents now rely on it for automation, while over half leverage it for research and analysis. With over one-third (35%) of businesses expecting no workforce impact from AI in the next five years, AI is seen as a new helping hand for SMB operations rather than a disruptive force. Remote Work Retreats as Hiring Power Shifts to Employers Nearly half of the respondents (49%) now require full-time office presence, up 7% from 2024, as businesses prioritize collaboration and culture over flexibility. This shift comes as small businesses' recruitment concerns fell 8% and retention challenges dropped 16%, signaling that the current job market favors companies over candidates. Access the full 2025 Small Business Insights Report here Survey Method Counterpart commissioned a survey of 302 small business owners and CEOs across the United States with a minimum of 25 and a maximum of 499 employees in July 2025, using random sampling. Based on a confidence interval of 95%, the margin of error for 302 is +/- 5.6 percentage points. This means that all other things being equal, the identical survey repeated will have results within the margin of error 95 times out of 100. About Counterpart Counterpart is the first Agentic Insurance™ platform, combining trusted insurance expertise with cutting-edge AI to deliver tailored management and professional liability solutions. By integrating Agentic Underwriting™, Agentic Broker Services™, Agentic Risk Mitigation™, and Agentic Claims Management™ into one powerful platform, Counterpart empowers brokers and the businesses they serve to do more with less risk®. Backed by A rated carriers including Aspen, Markel, and Westfield Specialty®, Counterpart has been recognized in 2024 by CB Insights as a “Top 50 Insurtech,” by Great Place to Work, and by Business Insurance as one of its “Best Places to Work.” To learn more, visit yourcounterpart.com.