Allianz Risk Barometer 2019
SME business risks

Awareness of the growing cyber threat and its link to loss of reputation, weather woes and the impact of changes in trade agreements, are the major worries for multinational SME businesses.

Taken together, total responses from small- to midsized (SME) business experts account for about half of the total Allianz Risk Barometer responses (1,437 of 2,882). Business interruption (BI) is the top risk for medium-sized enterprises (annual revenues over €250mn but under €500mn) replacing cyber incidents in the top spot year-on-year. Coincidentally, cyber incidents is the top risk for small-sized enterprises (annual revenues under €250mn), replacing BI which was the top risk in 2018.

SME companies increasingly recognize their cyber exposure and are more apt to secure adequate insurance cover than in the past, says Rajiv Iyer, Global Head of MidCorp Package, Small Business and Casualty, AGCS.

“This stems from the fact that advances in cloud computing and social media have increased small companies’ exposures while large data breach events, such as the Equifax breach and numerous other cyber security-related issues have necessitated greater protection of customer data. SME businesses see the need for adequate cyber cover to feel more protected in case of an event such as a breach.”

While cyber incidents increased in the small-sized company space, BI drops from first place to fifth in the ranking for 2019. For mid-sized companies, however BI is the top risk concern. Iyer believes that BI claims, while admittedly lower in value for SME businesses, remain an issue. A severeminterruption can even have a terminal impact for smallersized companies, given the effect it can have on income and revenues. Iyer sees significant BI exposure among SME businesses from natural catastrophe activity, cyber risk and changes in legislation.

Natural catastrophe and weather volatility is another major concern for SME businesses. Natural catastrophesremains in third position year-on-year for both small- and mid-sized companies while climate change/increasing volatility of weather appears in both top 10 risk rankings.

“The recent significant increase in windstorm, wildfire and hurricane activity has created the need for adequate property and BI coverage for lost income,” says Iyer. Further, Iyer believes that the US decision to quit the Paris Climate Treaty, as well as to focus on coal and relax environmental regulations, may exacerbate the effects of global warming.

"’Unprecedented’ is used to describe the last couple of years in terms of natural catastrophe events and, while this activity might be cyclical in nature, for now it is a reality with no abatement in sight,” says Iyer.

One risk concern that has increased significantly in both the small- and mid-enterprise space is changes in legislation – from fifth to second year-on-year for smallsized companies and from sixth to fourth for mid-sized firms. Renewed populism in many countries, as well as changes in trade agreements and outright trade wars, are affecting multinational SME businesses.

“Changes in the cost of goods based on tariff expansions and increased protectionism remain a volatile factor for our customers and businesses,” says Iyer. “This, in turn, causes swings in net income or cost of goods sold.”

In general, as the global economy slows down, SME businesses may see a residual slowdown in production in 2019. Tariff increases will have a residual effect on net income and operating cash flows for maintenance and upkeep of facilities. SME companies with diversified portfolios will be able to weather the possible downturn. Finally, cyber exposures will continue to threaten SMEs, while changes to governmental regulations on data security means SME insurers will have to tailor coverage to companies’ exposure-based needs.