SME Resilience, Continuity & Mutual Partnership Opportunity

The concept originated in Switzerland, initially examining low cyber insurance uptake among SMEs. The research revealed that the core issue was not insurance itself, but business survival during disruptions. SMEs often know how to recover but lack time, liquidity, and resources during critical periods. The proposition aims to provide SMEs with the means to drive their own recovery, focusing on mitigating liquidity events caused by various disruptions like cyber attacks, cloud outages, or supply chain issues. The central question became: Can a company survive long enough to recover?

SMEs are vital to modern economies, with Germany having 3.5 million SMEs accounting for 99% of all businesses and over half of total employment. They form the backbone of the German Mittelstand and are crucial for supply chains. Strengthening SME continuity and recovery capabilities complements broader resilience initiatives like NIS2 and KRITIS. Similarly, Swiss SMEs are key economic drivers. While individually small, collectively they are too important to fail, highlighting the need for a new framework to help them survive major disruption events.

Large-scale events, whether cyber attacks or natural disasters, lead to scarcity of recovery resources. Business recovery increasingly depends on individual companies' ability to fund and organize their own efforts. SMEs, though small, often perform critical functions within larger industrial ecosystems, and their failure can have disproportionate downstream impacts. SMEs also finance parts of supply chains, making them vulnerable to financing disruption. Disruption moves from operational to liquidity, then credit stress, potentially causing widespread failure. The Jaguar Land Rover cyber incident serves as an example of how disruption at a major manufacturer can cascade through thousands of suppliers.

The proposition evolved from an insurance product to structured continuity financing. Instead of conditional indemnification, it offers rapid liquidity support during a company's most vulnerable period. The objective is not full indemnification but sufficient liquidity for continuity, recovery, and survival, creating time for recovery, engagement with lenders and suppliers, and management to restore operations before liquidity becomes the primary threat.

The framework is characterized by simplicity, focusing on business continuity with disruption as the trigger rather than complex claims; speed, providing rapid access to funds when needed most; survival, preserving viability over merely compensating loss; scalability, addressing a consistent problem across European markets; and alignment, integrating all participants' interests effectively. The long-term vision is a member-owned resilience organization, emphasizing mutuality for trust, member ownership, retention of surplus, and fostering better risk behavior, creating a 'virtuous cycle' of resilience improvements.

Lenders view disruption events as credit events. The proposed resilience buffer allows debt servicing to continue, provides recovery time, reduces credit deterioration, and fosters better lending relationships. Lenders may see this as a portfolio resilience tool, improving credit quality and confidence in SME lending. The continuity protection could be embedded within SME financing products, aligning interests of SMEs, lenders, the mutual, and reinsurers. This framework aims to transform the sequence from 'Operational Disruption → Financial Stress → Credit Deterioration' to 'Operational Disruption → Continuity Support → Recovery → Preserved Credit Quality'.

The concept involves SMEs declaring fixed costs, with payments commencing after qualifying interruption events, aiming for a 'survival buffer' rather than full indemnification. Underwriting focuses on simplicity with measures like credit-score reviews and ongoing monitoring to improve resilience. An MGA-led structure is proposed as the starting point, acting as the specialist operating platform for product development, underwriting, and distribution, with the ability to scale across Europe. Mutuality is seen as the destination, transitioning to a dedicated mutual structure once sufficient scale is achieved. The discussions with DEVK aim to explore strategic merit, potential partnership on market attractiveness, product architecture, and various involvement levels, focusing on building a new SME resilience mechanism rather than solely traditional insurance.