“Mid-sized companies are significantly more concerned about risks in 2022, yet not more prepared. While they indicated that they are most prepared for the risks that cause the highest level of concern, fewer than half have a mitigation plan in place for most risks”, according to the 2022 Mid-Sized Company Risk Report.

The third annual Mid-Sized Company Risk Report from QBE North America and the Association for Corporate Growth® (ACG) surveyed 302 decision makers that have significant influence on managing business risk at US mid-sized or middle market businesses with annual revenue between $US200 million and $US3 billion. The survey was conducted between June 28 and July 12, 2022.                                                                              

“Significant global macroeconomic and political risks have buoyed concern among companies worldwide, and mid-sized businesses are no exception. Facing increased risks from cyber threats, supply chain issues, labour shortages, conflict in Ukraine/Russia, inflation and recession fears and other dangers, companies are feeling increasingly vulnerable”, cautions the report.

With this heightened concern, mid-sized companies are becoming increasingly frustrated with the help they are getting for reducing risk exposure. This may explain why among the executives surveyed, nearly three quarters (74%) stated unmet needs in their responses, which is up significantly from the previous two years (2021 and 2020).

Among the leading needs for risk mitigation, the need for customised risk management advice (52%) and insurance products (52%) were ranked as the topmost. More reasonable rates (45%), crisis management and recovery services (44%), packaged industry products (43%), and educational and business networking services (35%) were the other top-tier needs for reducing risk exposure.

The report also showed that “Companies are looking to engage with their insurance providers for loss control planning and claims support more than ever before, with a full 90% indicating a high level of interest in doing so (a percentage that has risen each year).”

Companies’ top macro risks

The level of concern for all macro risks measured rose significantly, with financial, digital and business interruption risks taking the top three spots of the most concerning macro risks among mid-sized companies.

 

Source: QBE-ACG 2022 Mid-Sized Company Risk Report

Financial risk and digital risk ranked as the first and the second most concerning for the third year in a row. Within the financial macro risk category, fraud/theft remained the primary concern, and within the digital risk domain, corporate espionage/critical data theft and intellectual property theft/loss were the chief concerns.

Business interruption risk was the third most concerning macro risk for the second year in a row. Loss of critical supplier/sub-contractor and fragile supply chain were selected as the top risks within the business interruption macro risk category.

Organizational risk jumped from the seventh most concerning in 2021 to the fourth spot in 2022, while pandemic-related risk fell from the fourth to the seventh spot.

“Executives expressed a number of reasons for ranking organizational risk higher. Companies pointed to risks surrounding M&A deals as a main driver, fearing failure to realize the benefits or synergies of the merger. The impact of demographic changes to the talent pool, attracting and retaining talent, remote work challenges among teams, and inability to innovate were also key factors in the rising concern over organizational risk”, the report explains.

Macroeconomic risk and the risk related to climate change jumped two spots in ranking in 2022, alluding to the global concerns surrounding frequency and severity of weather events, pressure to meet ESG mandates, soaring inflation, exchange rate volatility, and recession fears. Despite increased worries over climate change risks, only a third of mid-sized companies have a risk mitigation strategy to address the concern.

Risks pertaining to litigation and natural disasters ranked as the two least concerning of the 12 macro business risks. These fell two spots in the ranking and were overtaken by macroeconomic and climate change risk.

As in 2021, this year, the contrast between levels of concern and having a risk mitigation strategy suggests that mid-sized companies may lack the resources to address all but their biggest risks, which is supported by the survey findings where fewer than half of the companies have a mitigation plan in place for any of the macro risks beyond the top four.

Companies top micro risks

 

Source: QBE-ACG 2022 Mid-Sized Company Risk Report

Of the 97 micro risks, the most concerning is cyberattacks and data breaches, which for the third year in a row topped the list of micro risks. This continued concern is being attributed to the increased cyber attacks and vulnerabilities stemming from the shift to remote working.

Concern about changes in regulations that would impact business eased in 2022. Executives surveyed believe that constantly changing business regulations expose them to many risks. Fraud/theft ranked second alongside regulation changes as a concerning micro risk, which is an indication that fraud prevention measures deployed by the surveyed companies aren’t satisfactory.  

Recession concern increased slightly from 2021 and ranks third in the list of top five micro risks. The risk of recession is “Significantly elevated among mid-sized companies with $200 million - $499 million in revenue and those more than 20 years old as compared to companies with $500 million + in revenue and companies up to 20 years old, respectively”, notes the report.

Mid-sized companies continue to have concerns over employee health and welfare, despite the COVID-19 pandemic fears fading. Medical cost inflation, employee benefit costs and accidents/health issues/worker’s compensation were all top of mind among the decision makers surveyed.

To conclude, “Despite a faltering economy in 2022, mid-sized companies have continued to boast strong growth. Bolstered by robust demand and solid productivity, mid-sized companies again achieved record-high year-over-year revenue and employment growth since 2020”, advises the National Center for the Middle Market (NCMM), a research centre located at The Ohio State University Fisher College of Business. 

Data from the NCMM further reveals that although growth rates have levelled off from historic highs in 2020, most middle market firms have continued to grow rapidly, increasing revenue and employment at rates of 10% or more annually. Earnings have also continued to grow, as per the Golub Capital Altman Index, although at a slower pace than revenue.

Despite the strong growth, mid-sized companies are feeling the effects of global discord and uncertainty on economic outcomes. In the light of the imperilled world economy, the Mid-Sized Company Risk Report is a useful source of knowledge to understand US middle market companies’ challenges, evolving risks and unmet needs for reducing risk exposure.