Whether cyber-attack or flood, loss events tend to hit smaller companies much harder, with longer periods of disruption. Yet, mid-size and smaller firms risk being left behind as large companies up their investments in resilience and risk awareness.
This article is part of the ÐÇ¿Õ´«Ã½ Risk Barometer 2024
The most important corporate concerns for the year ahead, ranked by 3,069 risk management experts from 92 countries and territories.
The top three risks of concern for large, mid-size and smaller companies in this year’s ÐÇ¿Õ´«Ã½ Risk Barometer are broadly aligned, with cyber, business interruption and natural catastrophes in the top three spots.Â
Cyber incidents replaces business interruption in the top spot for both large and mid-size companies and remains the top risk for smaller firms. Natural catastrophes climbs the risks of most concern for all three company sizes and ranks second and above business interruption for smaller firms.Â
Loss events like a ransomware incident or a flood tend to be more impactful for mid-size and smaller companies.Â
“A cyber or extreme weather incident can hit a small company disproportionately hard,†explains Nikolaus Breitenberger, Global Head of Business Solutions and Transformation, Risk Consulting at ÐÇ¿Õ´«Ã½Â Commercial. “They are much less likely to have mitigating measures in place like offsite backups or flood response plans and can easily end up paralyzed or even out of business.â€
Business interruption impact can usually be far greater as these companies do not have the scale and diversification strategies of large companies. Mid-size and smaller firms are more likely to be overly exposed to a single large customer or supplier and typically do not have the resources to invest in business continuity planning and carry out risk assessments.
“Smaller firms and family-driven companies just do not have the time and the resources to spend on these risks,†says Breitenberger. “Unlike large companies, they do not have dedicated people or departments working on ‘what if’ scenarios to get an overview of their exposure and prepare. So, when a loss occurs, they are unable to respond quickly and take longer to get the business back up and running.â€
Mind the gap
The resilience gap between large and smaller companies is widening, as bigger firms take lessons from the pandemic and apply them to risks like cyber and natural catastrophes.
“Among large companies, risk awareness has grown since the pandemic, and there has been a notable drive to bolster resilience,â€Â says Breitenberger. “Big companies are typically much more risk aware and invest more in loss prevention and mitigation than smaller companies.â€
As the resilience gap widens, mid-size and smaller companies become more reliant on insurance to protect themselves. However, in a world of complex and changing risks they will also need more risk management support to mitigate the business impact of surprise events.
Top 4 risks for smaller companies in 2024
<US$100mn annual revenue
Source: ÐÇ¿Õ´«Ã½ Risk Barometer 2024. Total number of respondents: 937. Respondents could select more than risk. Top 4 answers
Top 4 risks for mid-size companies in 2024
US$100mn+ to US$500mn annual revenue
Source: ÐÇ¿Õ´«Ã½ Risk Barometer 2024. Total number of respondents: 792. Respondents could select more than risk. Top 4 answers.
Top 4 risks for large companies in 2024
>US$500mn annual revenue
Source: ÐÇ¿Õ´«Ã½ Risk Barometer 2024. Total number of respondents: 1,340. Respondents could select more than risk. Top 4 answers.
“Insurers can help to create awareness, educate, train, partner with, and proactively support these companies with insights and risk management services, in addition to insurance products,†says Breitenberger.Â
“Helping them prepare for risks, whether that be a cyber-attack or climate change is beneficial for us both. If we create more awareness and support companies to prevent and mitigate losses, we are both less likely to face surprises.â€Â
Bigger picture vs. day-to-day concerns
The survey also reveals that big picture concerns, like climate change and political risks, are of greater concern for large companies, with smaller firms more preoccupied with more immediate perils.Â
For example, macroeconomic risks, such as the impact of high inflation or interest rates, and market developments relevant to specific industries, such as intensified competition or stagnation, are of greater concern for smaller firms, ranking #4 and #7 respectively.Â
For larger companies, macroeconomic developments only ranks #6 with market developments not in the top 10.
Climate change rises two places to #4 in the large company rankings, its highest ever position, and three positions to #6 for mid-size firms. In contrast, it drops one place to #9 for smaller companies. And while political risks and violence is unchanged at #8 for large companies and up one place for mid-size firms at #9, it does not feature in the top 10 for smaller firms.Â
However, small businesses in industries such as hospitality and retail can easily be adversely impacted by civil unrest incidents, which have been increasing around the world.
“Smaller and mid-size companies are not insulated from global events. They often have bigger dependencies on external markets than they realize and can still be affected by events in faraway countries. We have seen in the past how companies and supply chains in Europe and the US have been impacted by floods and earthquakes in Asia or even by a ship being grounded,†says Breitenberger.Â
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