Barnes Commercial Insurance Brokers writes:
In today’s current climate it’s hard work to keep a business going. There are potential risks from all over the place, which you may face on a daily basis. Recognising and understanding how to mitigate these risks is crucial to business survival.
The team recently came across an article that looked at the top 10 risks facing businesses globally, and you may not be surprised to learn that these risks are all almost certainly faced by SMEs in the UK right now.
Using information from AON’s 2021 Global Risk Management Survey of 2021¹, we take a look at these risks and what you can do to mitigate their likelihood in your business.
1 - Cyberattack / Data breach
The risk of Cyberattack or Data breach tops the risk list. In the last report carried out in 2019 this risk was at number nine. As the global pandemic has taken hold and we find ourselves adopting new ways of working, this has opened the door to cybercriminals. They have taken advantage of remote working and the surge in online activity from business and consumers alike.
According to the AON report, ransomware attacks have grown dramatically with losses to business across the globe estimated at a staggering $20Bn this year.
The potential for a cyber event has risen exponentially with risks increasing internally as well as from external sources. Weaknesses in internal systems, vulnerable external links to partner systems and poor procedures have given the cyber-criminal an advantage, as businesses rush to change working methods to survive the choppy economic landscape.
A comprehensive cyber risk strategy will go a long way to helping reduce the likelihood of a cyber event and aid a swift recovery should the worst happen. Your strategy should include prevention measures and crisis management, alongside a robust cyber liability insurance policy.
2 - Business Interruption
Sitting at number two is Business Interruption – something we’ve heard a lot about over the last two years. This is a risk that increased with the onset of Covid-19, and for many will be the one that causes most issues. Previously Business Interruption cover was considered for localised or insular events that may happen to your particular business, but the pandemic has made businesses look at this risk differently.
It has united businesses from all kinds of sectors because it has brought many to a complete halt, with travel restrictions and lockdowns preventing normal operations. No matter where you are in the world, the risk of Business Interruption is significantly higher now than it was pre-pandemic.
UK businesses must think about Business Interruption differently and strategise for these types of interruptions, which could easily happen again in the future. Talking with an expert commercial broker or insurer for your sector will allow you to understand what can be included within a policy, to protect your business. Creating contingency plans and keeping them up to date will help to mitigate potential operational restrictions in the future.
Whilst you can’t influence the external factors that cause business interruptions, good planning and a robust insurance policy are within your control.
Find out more about Business Interruption insurance here.
3 - Economic Slowdown [[{"fid":"296944","view_mode":"default","fields":{"format":"default","alignment":"","field_file_image_alt_text[und][0][value]":false,"field_file_image_title_text[und][0][value]":false},"link_text":false,"type":"media","field_deltas":{"1":{"format":"default","alignment":"","field_file_image_alt_text[und][0][value]":false,"field_file_image_title_text[und][0][value]":false}},"attributes":{"style":"float: right; margin: 15px;","class":"media-element file-default","data-delta":"1"}}]]
Covid-19 has influenced economies across the world, with the global economy contracting 3.2% in 2020. According to data from Bloomberg, the UK economy contracted nearly 10% the same year, but looks to grow by 6.5% this year. The growth for 2021 has been driven by the easing of lockdown restrictions, but with instability from the changing Covid variants, this is liable to fluctuations.
It’s likely to be a bumpy ride for some time to come, not just in the UK, but across the globe, affecting travel, the flow of goods, services and supplies.
Considering your operating model and evaluating growth plans in times of economic uncertainty will help you to identify risk areas.
4 - Increased Prices and Reduced Availability of Raw Materials
Number four on the global risk list, this is highly relevant to businesses in the UK too. Not only has the pandemic disrupted supplies with lockdown restrictions preventing raw material movements, but we have also had the effects of Brexit too.
Classic demand and supply have driven prices up, coupled with having to source alternatives or changing production methods. The ability to transport products and raw materials has become a real issue for firms, and the demand for many products has increased, particularly online. If your business can’t adapt quickly or is unable to get the right raw materials to continue to operate and fulfil orders, the risks you face could prove insurmountable.
To help mitigate risks is this area it’s advisable to improve your cost tracking analysis systems to make sure you can cover your costs and remain profitable. Passing costs onto the consumer is one strategy, but in competitive markets, you may find yourself too expensive. Purchasing departments should aim to be as agile as possible, always looking for the best options for your business.
5 - Reputation or Brand Damage
The pandemic has provided a new focus, taking the spotlight away from companies that have suffered an event that could lead to reputational damage. However, damage to your brand or reputation is still seen as a significant risk to businesses. According to an AON-Pentland report in 2020, on average a significant event causing reputational damage led to a 26% drop in value for shareholders in the 12-month period following the event.
To mitigate damage to your brand or reputation following an unexpected event, it’s wise to have contingency plans in place. A robust risk management plan will help you to consider scenarios that may occur and create a strategy to deal with them. This may include the use of an external PR agency or communications department who will be able to keep all stakeholders up to date with what is going on, to keep uncertainty at bay.
6 - Regulatory or Legislative Changes
Number six on the list is the risk from the effect of regulatory or legislative changes. AON’s report found that as countries look to improve how they operate in a multitude of areas, new regulations are being introduced. The UK has seen a variety of legislative changes in taxation, public health, technology and financial markets for example, as a result of the pandemic, our economic situation and because of climate change.
These changes may affect how companies operate and how and when consumers’ purchase. Keeping up to date with the changes and adapting your working practices to remain compliant is an area of risk. Non-compliance may have serious consequences, both financial and reputational, putting the longevity of your business at risk. Failure to comply could leave you open to fines, penalties and prosecution.
A good way to ensure that you keep on top of any regulatory or legislative changes is to create a compliance strategy. If your business is large enough, this could be in the form of a compliance department, or for smaller firms, giving the responsibility to key members of staff. Knowing that changes are likely to come into effect, as early as possible, will allow you to adapt your working practices to ensure you remain compliant, mitigating your risk. Depending on what the change required is, it may be part of your selling proposition and actually help you to secure new investors and customers.
7 - Pandemic Risk [[{"fid":"296945","view_mode":"default","fields":{"format":"default","alignment":"","field_file_image_alt_text[und][0][value]":false,"field_file_image_title_text[und][0][value]":false},"link_text":false,"type":"media","field_deltas":{"2":{"format":"default","alignment":"","field_file_image_alt_text[und][0][value]":false,"field_file_image_title_text[und][0][value]":false}},"attributes":{"style":"float: right; margin: 15px;","class":"media-element file-default","data-delta":"2"}}]]
You may have expected this to be at number one! It’s no surprise that this risk has entered the top ten given the last two years. Previously, pandemic risk was ranked 60th in AON’s 2019 report. Coronavirus has brought into sharp focus, the risk of a pandemic to all business worldwide.
Like most other developed countries, UK businesses have been affected by a variety of issues stemming from the pandemic. From consumer demand and buyer behaviour, to supply chains, internal processes and workforce availability, there really has been no area left untouched.
The recommendations for businesses are to be as flexible as possible. If you are able to make changes to your business model to accommodate the effects of the pandemic, even if only for the short term, it’s advisable to ensure business survival. Your business must be as agile as possible to reduce your risk exposure.
8 - Distribution and Supply Chain Issues
This risk made it to the list this year because of climate change and the increase in natural disasters that occurred across the world, and of course because of the pandemic. Let’s also not forget the chaos that ensued following the container ship Ever Given, which got stuck across the Suez Canal earlier this year, causing product and raw material delays for many businesses.
In the UK, in addition to these issues, our risks in this area were increased by the effects of Brexit.
Of course, as technology has advanced and with the pandemic changing many business models to online operations, cyberattacks have also increased, putting a spanner in affected distribution and supply chains.
To help manage your risk exposure here, we suggest that you create or update your contingency plans. Make sure you understand your supply chains thoroughly and know how to navigate a new path should something go awry with your existing set up.
9 - Increased Competition
Competition is always a risk to any business. In this year’s global survey, it’s at number nine, which is a drop from position five in 2019. This is most likely because the effects of the pandemic have had a more significant impact.
In the UK we have seen some businesses that have been able to take advantage of effects from the pandemic. Retail firms already operating online have been able to increase their foothold and probably experienced fewer risks than those trading traditionally offline.
A myriad of factors can influence a business’ own competitive position; from its own resilience, new players in the market, technologies adopted, and changing consumer trends, to new regulations and economic changes, can all have an effect.
A strategy to help manage risk from increased competition is to carefully analyse all factors that could result in a loss of market share. A simple way to do this is with a SWOT analysis, to identify your strengths and weaknesses and those of your competitors and other external factors.
This will help you to look at what you can change in your current operating model, including adopting new ways of working, as we have witnessed by companies throughout the pandemic.
10 - Failure to innovate or meet changing consumer needs
The world is not standing still, despite the pandemic, natural disasters and climate change. Your customers should be at the heart of everything you do and meeting their requirements and expectations is critical to ongoing success. This is an area of risk to all businesses of any size.
To continue to be successful a business should be striving for improvements all the time in all aspects of their business; product development, communications, internal systems, people, technology, procurement, distribution, all play a part.
The level of innovation will depend on your market sector and size of business. Some strategies will be riskier than others, but as we have seen in the pandemic, many that were forced to make changes in order to survive, found it was the best decision they ever made.
With any innovation strategy, there will be risk exposure. To help you avoid unexpected events, it would be prudent to create a comprehensive risk management strategy, just in case. Plan your strategy to protect your business and following its implementation, evaluate the outcomes to ensure that you are meeting your customers’ requirements, cost effectively.
Have you identified the risk you are facing?
With the exception of the pandemic, which has only made the top ten since emerging at the end of 2019, we found this that report confirmed many of the risks that we see UK businesses facing. Your own exposure will be dependent on the nature of your business and your operating models.
Has this given you food for thought?
Working with an experienced commercial broker, will help you to identify which risks are most significant for your business and can work with you to create a plan to minimise disruption should an unexpected incident occur.
Having a comprehensive risk management strategy with the right insurance set at the right level of Sums Insured, will bring you and your stakeholders, complete peace of mind.
As an independent commercial broker, we have partnered with a panel of A rated insurers to allow us to find the right insurance solution for your specific requirements. We will help you to protect your business as if it is our own, because we want to see you thrive and grow.
Talk to us about your risk management plans by calling 01480 272727 or you can send an email to enquiries@barnesinsurancebroker.co.uk
¹ The Survey respondents were 2344 risk decision makers across 16 industrial sectors SMEs and large organisations across 60 countries. It occurs every two years.