Five top risks facing midsize companies

Midsize companies are dynamic, growth-oriented organizations vital to the health and strength of the U.S. economy. America’s more than 200,000 midsize companies (defined here as those with annual revenues from $10 million to $1 billion) are powerful drivers of U.S. economic vitality, accounting for a third of the nation’s annual GDP.

As they grow, their risk profile expands. Each new product, customer, market, employee and vendor brings new risk. While the risks for different industries varies, here are the top five risks for midsize companies.

5. Natural hazards

Hurricanes. Tornadoes. Hailstorms. Blizzards. Wildfires. Earthquakes. Droughts. Floods.

These are some of the natural hazards that can have a huge impact on midsize businesses.

While most of the world was paying attention to the growing pandemic crisis and to civil unrest in the United States, Mother Nature produced one of the busiest and costliest years for hurricanes and tropical storms ever. In fact, the 2020 Atlantic hurricane season was the most active and the fifth costliest Atlantic hurricane season on record. There were 30 named storms last year, 13 of which developed into hurricanes. Twelve of the named storms made landfall in the United States, breaking the record of nine set in 1916.¹

In the Western United States, record-breaking megafires burned more than 8.2 million acres of land, destroyed over 10,000 buildings and killed at least 37 people. At one point, smoke from fires raging in California created haze-filled skies all the way to New York City.²

Severe weather events can wreak havoc on midsize companies. Many midsize companies have facilities and suppliers around the world, but they may not have the redundancies necessary to maintain production or distribution in case a severe weather event impacts those facilities or suppliers.

4. Business risk

Business risk could be perceived as a pretty broad category that encompasses everything from investment strategy to competition to supply chain risk. But two factors, in particular, can have a major impact on midsize companies: business interruption and employment.

Most companies cannot afford to be without an income stream for very long. When an event such as a fire or explosion shuts down a business for an extended period, a company’s future is threatened as it risks losing both its customers and its employees to competitors.

Many risks can affect a company’s ability to maintain operations. Water damage or fire damage can shut down operations for weeks or months. In our digitized world, a cyber attack can make it impossible for businesses to keep the doors open. And the costs to recover can be astronomical.

Businesses often like to tell their employees that their greatest asset is their employees. It’s not just lip service. What are businesses but an amalgamation of people with certain skills working together to provide products and services to customers?

There was a time when an employee could start working right out of high school and do the same thing for 40 years, then retire. But in today’s rapidly evolving work environment, workers need to learn new skills throughout their career to keep up with the demands of business.

That is the challenge — and the risk — facing midsize companies today. Many roles will be automated with advances in robotics, but new roles will emerge. Businesses will need to be prepared to retrain their existing workforce and attract new workers with a whole new set of skills.

3. Liability

Liability is often an unforeseen risk for midsize businesses. Lawsuits can arise out of almost any situation and show up when they’re least expected. Even if the litigation is baseless, companies will still face costs associated with legal defense. Something as simple as a customer tripping and falling on a showroom floor or an office lobby can result in a damaging lawsuit.

Liability risk can come in many forms. In addition to general liability, businesses may be subject to directors and officers liability, employment practices liability, fiduciary liability, errors and omissions and product liability. Management liability insurance can give business leaders peace of mind and enables businesses to focus on building sustainable growth.

Compounding all the liability risk is “social inflation,” a relatively new trend causing costs to rise due to increased litigation, plaintiff-friendly judgements and higher jury awards. Changing demographics and attitudes have created jurors who care less about facts and laws, who distrust big companies and science and who are inclined to render big awards to plaintiffs they feel are sympathetic. Plaintiff’s attorneys, of course, know this and use it to their advantage.

2. Lack of risk management strategy

Look at any large global corporation and you’ll likely find an experienced risk manager and, perhaps, an entire department dedicated to controlling risk. Midsize companies rarely have this luxury, so their risk management strategies will be less robust.

All it takes is one major risk exposure to create a make-or-break situation for midsize companies. Insurance coverage is key. But it’s also important for midsize companies to combine risk management services alongside their coverages. A knowledgeable and supportive team can help navigate the leaps in growth and new exposures to risks that are common with midsize companies.

Zurich understand the enormous potential and the subsequent risk of midsize companies, which is why it combines property and casualty insurance products with its industry-leading Risk Engineering services.

1. Cyber risk

Cyber attacks was named the top threat for North American business leaders when the World Economic Forum released its annual Regional Risks for Doing Business 2020 survey in October.

In a year when coronavirus and COVID-19 have dominated the headlines, the spread of infectious diseases was the number-two risk, while cyber attacks held the top spot for the third consecutive year. It is, perhaps, a sign that while global risks continue to evolve, an increasingly digitalized economy remains exposed to cyber threats.

Businesses of all sizes are potential targets for cyber crime. And while breaches earning the biggest headlines are those targeting the largest corporations, midsize organizations share the same vulnerabilities. Indeed, midsize companies may be at greater risk. Most do not possess the same cyber defense infrastructure and expertise of larger organizations.

Cyber attacks on midsize companies are increasing even as these businesses continue to underestimate their risks. According to a report by the National Center for the Middle Market, the percentage of midsize firms being attacked has risen steadily over the past several years.

Most often, a network incursion is intended to steal and misuse customer or business information for financial gain or to cause simple mischief. Email attachments containing malicious code can launch malware designed to invade and corrupt data. Ransomware locks access to network data until a typically large ransom is paid. An attack on software running highly specialized equipment used by a particular industry — such as CAD equipment used in construction or diagnostic medical equipment used by hospitals and clinics and made by just one or two manufacturers — could disrupt an entire business segment at once.

Insurance solutions such as Zurich’s Cyber Insurance Policy can provide an essential, frontline defense against cyber risks. Zurich’s policy features an in-depth, initial assessment by trained cyber Risk Engineers of all networked devices and overall security protocols as well as ongoing network monitoring.

Read more about Zurich solutions and risk insights for midsize companies.

Learn about key global risks in the Global Risks Report 2021.