Middle-Market Companies Post Record Gains: Chubb

By | April 15, 2024

Middle-market companies posted record economic growth and revenue gains in the second half of 2023, according to a recent indicator survey by Chubb.

A record 77% of companies reported performance improvement in the last six months of 2023 – the highest total in the 12-year run of Chubb’s joint survey with the National Center for the Middle Market at Ohio State University’s Fisher College of Business. The second half of 2023 marked the fifth consecutive six-month stretch that showed all survey respondents reporting profit increases of more than 12%. This came despite the backdrop of inflationary pressures, cybersecurity threats, natural catastrophes and insurance coverage gaps. Looking ahead, however, middle-market companies anticipate a one-third reduction in revenue growth in 2024.

Favorable momentum surrounding the segment’s growth and investment is not a new phenomenon.

“There are some themes that we’ve picked out, and the one that’s the most prominent, I would say, common in the middle market is [that] this sector tends to reside in this intersection between resilience and [a] good runway,” explained Ben Rockwell, division president of Chubb Middle Market.

Ninety percent of middle-market firms are privately held, Rockwell said, generally allowing them to think about investments and earnings on a longer-term basis than publicly traded companies that operate more on a quarter-to-quarter basis. And, unlike small businesses, those in the middle market companies have scalability.

“You’ve got a third of the private sector GDP in employment really sitting in this middle market space,” Rockwell said. “So, there’s a real scale there where these middle-market firms can make a real economic difference. And, interestingly, a lot of them have multi-national exposures, but not all of them do.”

This means the sector is less exposed to the global marketplace and less likely to be jolted by geopolitical issues like wars and supply chain problems. The ability to invest in new technologies and innovation at a faster pace also sets the segment apart.

According to the report, employment growth slowed for all sizes of middle-market companies in the second half of 2023, with large companies breaking their uptrend for the first time since 2020. Middle-market companies overall expect employment growth to cool further.

Focus Points

According to the report, middle-market companies do recognize areas where they’re underinsured.

Only 36% of companies reported their multinational insurance needs are covered, and 40% said they are adequately covered for pollution liability. Evolving cyber risks also present a challenge for middle-market companies, which are known to invest and utilize new technology.

“It’s interesting, we saw it in the survey; there are still some coverage gaps, and cyber is actually one of them,” Rockwell said. “We saw in the survey, 47% of the clients said that they were adequately covered. But 52% indicated they needed more or additional cyber coverage.”

He later explained that these firms tend to operate lean. Rockwell underscored the importance of independent agents and brokers working with clients to not only identify exposures but, more importantly, proactively plan to mitigate risks.

“And that’s not just the insurance programs you put together,” Rockwell said. “But these are really the risk management practices that they help enable in these firms. And I think that, for me, is a really big takeaway here.”

Climate change is on the middle market’s radar. It factors into where leaders choose to locate their businesses, Rockwell said, and it also plays a role in deciding how assets will be protected. Stability in the form of physical property resilience and business continuity planning are on their minds.

“When you see climate and you see catastrophic exposures and perils changing and evolving the way that we do, these firms are thinking about that,” Rockwell said.

Inflation remains a headwind for middle-market businesses, as do recession concerns and workforce challenges such as hiring and retaining talent. As inflation persists, Rockwell explained that Chubb’s research shows middle-market firms continue to value adequate limits and coverage because of the cost of replacing materials and wages.

The report notes that nearly three-fourths of companies will consider increasing their insurance coverage in response to higher replacement costs of their assets due to inflation.

“When we talk about inflation and the pressure on costs, really where we’ve seen it is in two main areas,” Rockwell said. “We’ve seen firms continuing to evaluate the limits that they’re carrying on their programs.”

He later added: “The other area is we’re definitely seeing clients take more risk in the form of higher deductibles. So, as you feel that inflation pressure [and] cost pressure, as replacement goods are more expensive, we are seeing clients take higher deductibles as a way to kind of stabilize and manage their pricing as they work through their programs.”

Topics Commercial Lines Business Insurance Chubb

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Insurance Journal Magazine April 15, 2024
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