2024 Outlook: Middle Market Companies Set Financial Growth Records, Yet Remain Cautiously Optimistic Amid Emerging Risks

Rhea-AI Summary

Chubb and National Center of Middle Market Survey reveals middle market companies' robust growth amidst inflation, cybersecurity threats, and natural catastrophes. Revenue up 12.4%, highest since 2012. Inflation remains top risk, with companies planning price hikes and AI use. Weather events damage severity increases. Cybersecurity concerns rise with 33% lacking protection. Insurance coverage gaps recognized, with companies needing more coverage than initially planned.

Insights

Financial Analyst

The robust growth in revenue among middle market companies, averaging 12.4%, indicates a significant economic contribution that could influence investor confidence and market dynamics. This growth, despite inflationary pressures, suggests resilience within this business segment, potentially translating into attractive investment opportunities. The reported pullback on expansion plans, however, may signal a cautious approach to capital allocation, which could affect future growth trajectories and should be monitored by investors for potential shifts in strategy.

Furthermore, the emphasis on inflation as the primary risk reflects broader economic concerns that may impact profit margins and operational costs. The proactive measures taken by companies to manage inflation, such as raising prices and leveraging AI for efficiencies, could mitigate some of these pressures but may also lead to changes in consumer behavior and market competition.

Risk Management Expert

The heightened focus on cybersecurity, natural catastrophes and insurance coverage gaps underscores the evolving risk landscape for middle market companies. The reported preparedness of firms to handle catastrophic incidents and cyber threats is reassuring, yet the recognition of insurance gaps suggests a need for more comprehensive risk assessment and management strategies.

The increasing severity of weather events and their impact on insurance purchasing decisions reflect a growing awareness of climate-related risks. Businesses that effectively integrate risk mitigation strategies, business continuity planning and physical risk assessments into their operations could see reduced long-term costs and enhanced sustainability. Conversely, inadequacies in coverage could lead to significant financial vulnerabilities.

Cybersecurity Specialist

The MMI's findings on cybersecurity concerns highlight the critical nature of cyber risk management in today's digital landscape. With a significant portion of middle market companies considering additional cyber insurance coverage, there is an acknowledgment of the severe impact cyber incidents can have on business continuity. The survey's indication of a majority seeking or considering more coverage suggests a market trend where demand for cyber insurance is likely to grow.

As cyber threats evolve, companies that invest in robust cybersecurity measures and tailor their insurance to cover potential gaps will likely be better positioned to prevent and recover from incidents. This investment in cybersecurity can also serve as a competitive differentiator, potentially influencing stakeholder perceptions and market value.

New Chubb and National Center of Middle Market Survey reveals inflation remains the number one risk, and rising concerns over cybersecurity, natural catastrophes and insurance coverage gaps

WHITEHOUSE STATION, N.J., Feb. 22, 2024  /PRNewswire/ -- Chubb and the National Center for the Middle Market (NCMM) released today new 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 Recognized

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.

Chubb's Executive Summary with detailed findings are available here. Additional industry insights will be forthcoming across manufacturing, technology, financial services, and life sciences.

Upcoming 2024 Middle Market Webinar

Join the National Center of Middle Markets' Doug Farren and Chubb executives on Thursday, March 21 from 2 PM – 3 PM EST for a dynamic webcast panel discussion around the Year-End Middle Market Indicator findings. The webinar will focus on cyber insurance and other specialty areas, along with our perspective on other trending topics cited in the MMI. Check out the NCMM/Chubb Insights page for webcast registration here.

About the Middle Market Indicator (MMI)

Chubb partners with the National Center for the Middle Market in supporting the Middle Market Indicator (MMI), part of a bi-annual flagship research report started in 2012. The MMI surveys 1,000 executives (CEOs, CFOs and other financial decision-makers) from middle market companies and was fielded in Dec. of 2023 to explore middle market company executive thoughts regarding business capabilities, performance, growth drivers and economic outlook, among other topics. The survey is weighted to accurately reflect the size, industry-wide, and geographic distribution of this sector. These are companies with $10 million to $1 billion in annual revenue, which represent one-third of private sector GDP, employing approximately 48 million people. The survey is conducted by RTi Research on behalf of the National Center for the Middle Market, which is housed at the Ohio State University Max M. Fisher College of Business. The margin of error is 3.1%, which declines to 2.7% at the 75% level.

About the National Center for the Middle Market (NCMM)

The National Center for the Middle Market is a collaboration between The Ohio State University Fisher College of Business, Chubb and Visa. It exists for a single purpose: to ensure that the vitality and robustness of middle market companies are fully realized as fundamental to our nation's economic outlook and prosperity. The center is the leading source of knowledge, leadership and innovative research on the middle market economy, providing critical data analysis and insights for companies, policymakers and other key stakeholders. NCMM is fully committed to funding and distributing the most credible open-sourced research, dynamically creating new knowledge, providing programs that drive value for middle market companies and offering a well-informed outlook on the health and future of the middle market via the Middle Market Indicator.

About Chubb

Chubb is a world leader in insurance. With operations in 54 countries and territories, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients. As an underwriting company, we assess, assume and manage risk with insight and discipline. We service and pay our claims fairly and promptly. The company is also defined by its extensive product and service offerings, broad distribution capabilities, exceptional financial strength and local operations globally. Parent company Chubb Limited is listed on the New York Stock Exchange (NYSE: CB) and is a component of the S&P 500 index. Chubb maintains executive offices in Zurich, New York, London, Paris and other locations, and employs approximately 40,000 people worldwide. Additional information can be found at: www.chubb.com.

Chubb is the marketing name used to refer to subsidiaries of Chubb Limited providing insurance and related services. For a list of these subsidiaries, please visit our website at www.chubb.com.  Insurance provided by ACE American Insurance Company and its U.S.- based Chubb underwriting company affiliates.  All products may not be available in all states. This communication contains product summaries only.  Coverage is subject to the language of the policies as actually issued.  Surplus lines insurance sold only through licensed surplus lines producers.  Chubb, 202 Hall's Mill Road, Whitehouse Station, NJ 08889-1600.

 

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SOURCE Chubb INA Holdings

FAQ

What were the key findings of the Chubb and National Center of Middle Market Survey?

The survey revealed robust growth of middle market companies amid inflation, cybersecurity threats, and natural catastrophes. Revenue was up 12.4%, the highest since 2012.

What is the top risk identified by companies in the survey?

Inflation was identified as the number one risk, with nearly 60% finding it challenging. Rising labor costs and trade route conflicts contribute to the persistence of inflation.

What are companies planning to do to combat inflation?

To combat inflation, companies plan on raising prices and increasing their use of AI to enhance efficiencies and data analytics.

What percentage of companies lacked sufficient cybersecurity protection according to the survey?

33% of companies identified insufficient cybersecurity protection as a concern, highlighting the need for improved cybersecurity measures.

What were some of the insurance coverage gaps recognized by middle market companies?

Middle market companies recognized gaps in coverage for multinational, environmental (pollution liability), and cyber insurance, with many indicating the need for additional protection.