Navigating the Inflation Storm: Middle-Market Firms' Insurance Strategies

Inflation: The Top Challenge for Middle-Market Firms

Inflation continues to be the most pressing issue for middle-market companies, as highlighted by a recent study from Chubb. Despite a successful year in 2023, these firms are bracing for 2024 with considerable apprehension, particularly due to the anticipated rise in wages that could further fuel inflation. The ongoing conflicts in the Middle East have also disrupted trade routes, adding another layer of complexity to the inflationary pressures faced by these companies.

The Impact on Insurance Coverage

In response to rising replacement costs of their assets due to inflation, nearly three-quarters of the companies surveyed by Chubb are considering increasing their insurance coverage. The study underscores the importance of adequate insurance, noting that nearly a third of companies that experienced operational disruptions could have been covered if they had purchased available insurance. This highlights the need for not only sufficient property and equipment insurance but also comprehensive business interruption coverage and robust business continuity plans.

Strategies for Mitigating Risks

Middle-market companies have been grappling with inflation since the onset of the COVID-19 pandemic, exacerbated by changing employee dynamics. Alongside inflation, recession and talent shortage/employee retention were identified as major risks, with 10 percent of respondents ranking one of these as their top concern for the coming year. The study reveals that over two-thirds of companies have increased worker pay by an average of 5.5 percent in the past year, and nearly half have offered incentive compensation or retention bonuses to retain talented employees. Despite these efforts, fewer than half of the respondents felt they have enough cyber insurance coverage.

To navigate these challenges, nearly 40 percent of the companies surveyed expect to raise the prices of their products and services. The study also found that small companies are less prepared for business disruptions compared to mid-size and large firms, suggesting an opportunity for risk-management strategies that could reduce the need for increased coverage.

For readers, the takeaway is clear: in an era of rising inflation and complex global dynamics, it is crucial for middle-market firms to reassess their insurance coverage and risk management strategies. Ensuring adequate protection against property damage, business interruptions, and cyber threats can significantly mitigate the impact of these challenges and help companies maintain stability and growth.