Having survived the COVID-19 pandemic, many small businesses discovered what resilience truly means. They learned hard lessons about risk management and the importance of safeguarding revenue streams. Gallagher's 5 Years of Business Risk Evolution explores how the turbulent world we're living in has redefined the approach to risk and resilience.1
What is small business risk management?
Risk management is the process of identifying, assessing and mitigating potential threats or uncertainties that could disrupt your business. It involves analyzing the impact of these risks on business operations and developing strategies to minimize them, with the goal of protecting you from financial loss, legal liabilities and operational downtime.
Key insights
- Coming out of the pandemic, small businesses are more focused on proactive risk mitigation and being prepared.
- A strong core purpose and empowered teams are key to navigating uncertainty with confidence.
- For many small businesses, COVID-19 was a fight for survival. Forced to adapt quickly, they created new revenue streams to withstand intense pressure.
- As small business risk management becomes more complex, brokers provide deep expertise in loss mitigation and insurance solutions, allowing you to stay focused on what you do best.
The COVID-19 pandemic and resulting economic disruption was one of the defining periods in US small business history. Amid lockdowns and the shift to remote working, many companies faced substantial revenue losses and had to deal with long periods of business interruption.
Inflation rose, and the cost of materials climbed sharply due to supply chain disruptions, leaving small businesses squeezed between rising expenses and stagnant income.2 Despite government support, the crisis caused a high number of bankruptcies.
However, in the five years since the start of the COVID-19 recession, another trend has emerged: Small businesses that were able to adapt to the volatility have emerged stronger, more productive and more innovative.
To better understand how these companies are adapting and succeeding, Gallagher studied five years' worth of risk evolution data.1 The results paint a picture of a more robust generation of small businesses.
The new face of risk: Digital, people and operational risks dominate
The past year has been a succession of curveballs, including the pandemic, extreme weather events, rising political instability and digital transformations.
More than half of business owners say the world has become a riskier place, and nearly two-thirds say they value risk management more than they did five years ago.
Over the past five years, digital and operational risks have dominated priorities for small businesses. Rising cyber threats and frequent business interruptions have forced companies to rethink their strategies. Many are now leaning on risk management and innovation to stay resilient and protect against unexpected disruptions.
People-related risks have also become more of a challenge after a period of substantial change. The shift to hybrid working, cost of living crisis, increased focus on mental wellbeing and skills shortages are among the many trends shaping how employers think about recruitment, retention and engagement.
Small businesses rank high on adaptability and innovation
With a reputation for being agile and moving fast, it's no surprise that 85% of small businesses identify as being innovative.
When asked about the traits of resilient companies, small business owners ranked the "ability to adapt," "strong leadership" and "empowered employees" as their top three.
Small businesses have always relied on their employees to take on multiple roles, and this reliance has emerged as a key strength in times of uncertainty. Decentralized decision-making has allowed teams to respond quickly and with authority to emerging situations.
More than three-quarters of small business owners have had to seek new, unplanned sources of revenue to sustain growth in the past five years. To achieve this, they've expanded into new products and markets and invested in technology and research and development (R&D).
The upside of making these pivots? Just under two-thirds say the level of innovation within the business has grown.
Rather than buckle under pressure, many companies acted decisively during this period, adapting business models to find the opportunity.
On the frontline of climate change, small businesses face up to extreme weather
Natural catastrophes and extreme weather events like wildfires, tornadoes and floods disrupted operations for small businesses.
Gallagher's research found that, despite being among the most exposed, small businesses are also often the least prepared for climate change and extreme weather. But this vulnerability is beginning to change as small businesses take proactive steps to prevent losses and safeguard their people and property.
One big motivator? Insurance. In the US, a tough property insurance market is pushing companies to invest in loss prevention. Businesses that can show they've taken steps to reduce risk often get better renewal terms and pricing.
The shifting role of brokers and small business insurance
Business owners who filed Business Interruption (BI) claims were surprised to find a gap between their expectations and the actual coverage. However, COVID-related BI test cases have offered more clarity on how policies respond, and business owners now feel more informed about their insurance plans.
Given the complexities of the post pandemic world we live in, brokers play an important role in ensuring sure small business's assets are covered. Ninety-one percent of respondents consult a broker before making insurance decisions.
For many small businesses, insurance has taken on more importance. A third say they feel more protected by their business insurance than they did five years ago. In the past five years, 44% have added insurance protection, and 37% purchased new types of coverage for the first time, even as costs increased for more than half of respondents.
As a result, 88% of business owners say they're better prepared for future shocks and uncertainty than they were before COVID. This number suggests the tough lessons of the past five years have positioned them well for the future.
"The pandemic affected everyone at the same time but in different ways," says Jen Tadin, regional president of Gallagher Small Business and Personal Insurance. "Many small businesses have come to recognize the importance of business continuity management and the value of insurance, while leaning more on their agents for risk advice and guidance.
"The upside of effective small business risk management has become evident and businesses that handle risk well have adapted better to the current landscape and are less likely to experience large losses."
If you're interested in learning more about your coverage and how we can help, please contact us.
Sources
1"From Crisis to Confidence: 5 Years of Business Risk Evolution," Gallagher, June, 2025.
2Martos-Vila, Marc, and Zongtao Shi. "Bankruptcy Filings During and After the COVID-19 Recession," American Bar Association (ABA), 18 Mar 2022.