We all know that understanding how businesses approach risk is key to providing them with the most effective protection, but after the year we’ve all had, have some blindspots been exposed?
There are two key factors that must be considered when designing insurance products that really work for clients: risk perception and risk preparation. Many assume that these two factors are broadly aligned but the opposite is often true. In a year that has seen businesses tested to their limit across the globe, we decided to take a deeper look at the disconnect between risk and resilience.
In our recent study, New world, new risks: How are businesses’ attitudes to risk and resilience changing?, we identified a number of areas where risk perception and risk preparation were misaligned. The findings of our study make for interesting reading and underline the very real need to develop innovative pre- and post-loss solutions to help businesses improve their resilience to those risks that they worry about most, not just at home but across the globe.
The need for cross-border insurance solutions has been brought sharply into focus during the last 18 months. Understanding global issues and the ways in which they can impact businesses that operate in multiple countries is important, as is the need to take the regulatory landscape in each of those jurisdictions into consideration.
We asked business leaders in the UK and the US to identify their most pressing concerns in terms of risk, focusing on four specific areas: technology, business, environmental, and political and economic. They were also asked to rate their resilience in terms of their ability to anticipate and respond to these risks. Overall, the business risk category had the highest high-risk/low-resilience rating. This covers issues relating to supply chain, business interruption and boardroom risk; issues that could cause major disruption but that businesses are generally less prepared for.
Supply chain: There has been a well-documented spike in supply chain issues during the past year – caused by issues ranging from Brexit to the pandemic, to the Suez Canal crisis – some of which could not have been predicted, but all of which caused major headaches for businesses across the UK and beyond. Those reporting greatest anxiety around supply chain risk are from the manufacturing, energy and utilities and retail industries.
Business interruption: Just 41% of respondents we interviewed claimed to feel “very prepared” to address business interruption risk. The cost of unplanned closures was brought sharply into focus by the pandemic, and some companies are taking steps to prepare themselves better for similar interruptions. Perhaps unsurprisingly, hospitality and leisure are the sectors most concerned by the risk of business interruption.
Boardroom, legislative and regulatory risk: As with supply chain and business interruption risk, boardroom and regulatory risk have been front of mind for most businesses since the start of the pandemic. Adapting employee contracts, reporting and accountability have been big areas of concern for many businesses as they navigate their way through the changes to working practices brought about by lockdowns and other government restrictions. With the challenges brought about by climate change reporting to consider as well, regulatory risk is fast becoming a major area of concern for businesses across the globe.
Only by understanding the disconnect between risk perception and preparation can we make a tangible difference through innovative insurance solutions. The areas that are high risk to businesses, but for which they are not prepared, must be a priority for both business leaders and insurance providers.
Risks such as boardroom risk, employer liability and business interruption are easier for businesses to foresee and prepare for, while issues such as economic risk, climate change and supply chain interruption are more unpredictable. This, however, shouldn’t mean that they are put on the back burner; in an ever-changing world, it is important that businesses take a holistic view of the risks they face and protect themselves – even against those risks that they can’t control.
A better understanding of pinch points and the commitment to innovate in a meaningful way is required now to address the gap between risk perception and preparation in business. The role of an insurer has moved on from simply paying out when a claim is made; it is now more vital than ever that we understand risk trends both at home and across the globe, and general sentiment among business leaders, in order that we can offer the kind of insight that will truly protect our clients.
Partner content from Beazley