Middle Market Companies Show Growth, Remain Cautiously Optimistic

On Feb 23, 2024

Whitehouse Station-based Chubb and the National Center for the Middle Market (NCMM) released data that reveals middle market companies demonstrated continued robust growth against the backdrop of inflationary pressures, cybersecurity threats, natural catastrophes and insurance coverage gaps. These findings are the centerpiece of the 2023 Year-End Middle Market Indicator (MMI).

Middle market companies reported strong revenue growth compared to one year ago. On average, revenue was up 12.4%. More than half (55%) generated revenue growth of 10% or more. And more than eight in 10 (83%) said revenues were up year over year. These results are the highest since the MMI began surveying companies in 2012.

“Middle market companies are a bellwether for the overall health of the U.S. economy, and our survey shows they are posting record growth,” said Ben Rockwell, division president, Chubb Middle Market. “The findings of the MMI provide relevant direction and insights for agents and brokers to best counsel middle market companies in navigating and mitigating the risk management pressures with this critical business segment.”

Increasing preparedness for emerging risks continues to be top of mind for the middle market. According to the MMI, firms believed they were completely or very prepared to respond to the following disruptions:

• Inflation (45%)
• Catastrophic incidents (53%)
• Cybersecurity threats (58%)

However, compared to results from the MMI report in the second quarter of 2023, businesses indicated a pullback on expansion plans. In the latest report, three out of five companies (61%) said they plan to introduce a new product or service in the year ahead, versus 68% in the mid-2023 survey. There were similar declines for expansion into new domestic markets (55% vs. 62%) and adding a new plant/facility (42% vs. 48%).

Inflation Number One Risk

The MMI found inflation continued to be the number one risk for companies, and likely to persist due to rising labor costs and geographic conflicts impacting trade routes.

Nearly 60% say they find managing inflation extremely or very challenging, with higher wages as a major factor fueling cost pressures. To combat inflation and lingering recession worries, companies say they plan on raising prices and increasing their use of AI to improve efficiencies and data analytics.

Damage from Weather Events Increase in Severity

The U.S. was impacted by a record 28 separate billion-dollar climate disaster events in 2023, according to the National Oceanic and Atmospheric Administration, and respondents view this as a significant risk to their firms heading into 2024. Nearly half (48%) say it’s a top three factor in their insurance purchasing decisions. Over half of firms (53%) indicated they are completely or very prepared for disruption from catastrophic incidents. The MMI confirmed the importance of developing business continuity plans, as 44% of firms say they only recovered partially or not at all from an operational disruption.

“Middle market companies can benefit from the expertise and knowledge their agent or broker possess in preparing for short- and long-term catastrophe events,” Michelle McLaughlin, Executive Vice President and Chief Underwriting Officer, Chubb Middle Market, added. “This advice can translate into securing adequate coverage protection, risk mitigation strategies, business continuity planning and physical risk assessments for middle market companies achieving a more protected future.”

Cybersecurity Concerns Rising

The threat landscape for managing cybersecurity looms large for middle market companies, with 33% identifying insufficient cybersecurity protection. Other notable findings include:

• More than three in five (62%) survey respondents indicated cyber security as one of their top concerns factoring into their insurance purchasing decisions.
• Nearly half of companies (47%) believed they had adequate cyber insurance in place.
• A majority (52%) acknowledged that they needed or were considering the coverage.

“As the predictability of cyber threats becomes more difficult, the MMI survey shows the urgent need for companies to address cyber risks to prevent catastrophic disruptions,” said Mike Kessler, Division President, Chubb Global Cyber Risk. “We work with companies and their broker or agent to provide insight into the causes of cyber incidents and cyber security solutions to help prevent attacks, as well as assess protection gaps and tailor coverage to help clients recover from a cyber incident.”

Insurance Gaps Recognize

Middle market companies acknowledge that their overall needs for particular coverages were greater than what they had envisioned in their initial planning efforts. In terms of only adequacy and needs, respondents shared the following:

• Multinational – 36% said they were adequately covered, but 47% indicated they need or are considering additional protection.
• Environmental (pollution liability) – 40% said they were adequately covered, but more than half (51%) said they need or are considering additional protection.
• Cyber insurance – 47% said they were adequately covered, but 52% indicated said they need or are considering additional protection.

To access more business news, visit NJB News Now.

Related Articles: