Middle market firms recovering well, but challenges loom

In addition to reporting revenue growth, more than half (58%) of middle market firms are adding to their workforce – even in a tight labor market – to meet unprecedented consumer demand. The mean employment growth among middle market firms in the past year was 10.8%, which Ben Rockwell, division president for Chubb Middle Market, attributed to new business operations, products and services.

“Twenty-three percent of middle market companies added a new plant or facility in the last 12 months, and 51% plan to add a new plant or facility in the next 12 months,” he explained. “We saw that half the middle market firms introduced a new product or service in the past year, and 61% intend to in the next 12 months. And we also saw that 36% of middle market firms expanded into new domestic markets, and 57% say it’s extremely or very likely that they will expand in the next 12 months. That has a corresponding effect on their hiring.”

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While these trends are positive, there are some ongoing trends around economic inflation, supply chain disruptions, competitive risk, and catastrophic risk that many middle market firms are finding extremely or very challenging, according to the Chubb and NCMM report. Inflation was the number one challenge cited by middle market firms in the survey, which 62% of firms saying it is extremely or very challenging for them.

“Inflation is absolutely impacting many aspects of what we see in the middle market,” Rockwell told Insurance Business. “Businesses need to consider and be prepared for higher inventory, property valuations, higher replacement costs, extended repair times – all of which have increased due to growing inflation – as well as supply chain issues, and labor shortages. 60% of the respondents said that inflation has impacted their ability to replace their covered assets within their existing coverage.”

Of the 39% of firms reporting that inflation has negatively impacted their company, 62% said they have raised their prices or rates in response. Additionally, middle market firms are keenly aware of how the cost of risk has increased, with three out of four (75%) firms recognizing that the replacement cost of covered assets has increased – highlighting the importance of accurate valuations and strong business continuity plans.

Rockwell said strong collaboration between middle market firms and their insurance agents and brokers is “more important than ever” when facing tricky macroeconomic pressures, especially when it comes to developing robust risk mitigation strategies and identifying and filling any potential coverage gaps to help minimize exposures.

“It’s just so important that our middle market customers work with their agents and brokers to evaluate their current coverage and what impact inflation may have on that,” he said. “They need to discuss the total cost of risk and the pressure that inflation puts on their asset values. Many of the middle market companies we surveyed have already evaluated their coverage because of the inflated replacement cost of covered assets, and 72% say they will consider increasing those coverage amounts.

“What’s important is that middle market companies are having these conversations with their broker on the context of their full risks, and their exposure, and their operations. They should be talking about the impact on coverage, the decisions that they can make around the coverage limits that they buy, and the deductibles that they consider. All of those are variables can help insureds work through this challenging aspect in terms of the inflationary pressure.”

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 In addition to inflation, 55% of middle market companies reported that they have been directly impacted by supply chain disruptions, up from 47% in the fourth quarter of 2021. Of those directly impacted, 86% reported a negative impact on current revenue, and 85% reported a negative impact on revenue projections for the remainder of 2022.

Again, Rockwell stressed that “brokers and agents play a considerable role” in helping insureds mitigate the impacts of these trends – and the Chubb and NCMM report shows the “engagement is there,” with 90% of middle market firms reportedly talking to their insurance advisors on these topics.

“The engagement is there, and the brokers are then working with insurance carriers through how programs are constructed, how services are being offered to supplement what an agent or broker might be providing – everything ranging from business income consultations, to helping value buildings, and so on,” Rockwell explained. “All of that has helped insureds understand and deal with some of the challenges we’re experiencing today.

“At Chubb, we spend a considerable amount of time with our agents and brokers, really through the engineering services that we offer, as well as through claims services to help them put programs together. We’re typically supplementing what our agents and brokers would be offering, so that we can help them put together programs that address their clients’ unique needs and issues.”

Looking ahead, Rockwell doesn’t see the headwinds of inflation and supply chain delays calming down any time soon. He stressed the importance of strong business continuity planning, and sustained partnerships between insurers, agents/brokers, and insureds to work through any challenges that lie ahead.

He encouraged middle market firms to use the 2022 Mid-Year Middle Market Indicator as a benchmarking tool to see what their peers are concerned about and how they’re responding to those concerns. He added: “It also drives good discussions around how we can help these companies predict and prevent losses, and it helps us to put strong insurance programs together.

“It’s very helpful for us to understand what the challenges are within the middle market space. Chubb is dedicated to the middle market space, and so the deeper understanding that we have of what our insureds are dealing with and are concerned about will better position us to work with our agent and broker partners to respond. There are benefits for everyone.”