Adaption will be key as risk dynamics shift

Chris Andrews, director of Aviva Risk Management Solutions, explains business leaders fear a range of issues in the year ahead which will put new demands on underwriters to support clients as their risk profiles undergo fundamental change.

Businesses today are facing a series of challenging risks across all fronts. Economic concerns, staff shortages, Brexit – and now the emergence of the fast-growing Omicron variant – are set to define the risk landscape in the coming year.

The recent and lightning-fast growth of Omicron in the UK will almost inevitably set the scene for the beginning of 2022. Time will tell whether the severity of the new variant will see the UK economy locked down again, but even if not, it is clear that businesses will be forced to adapt once again to a set of fast-moving variables, presenting operational and risk management challenges.

But risk events will not be limited to Covid in the coming year. Far from it. To better understand the nature of the risks UK businesses are facing, Aviva recently interviewed business leaders about their most pressing risks for the year ahead. What emerged was a web of pressing and interconnected risks, where failure to address one risk can create ripples that will affect the rest of the business.

Economic concerns came top, although at a micro level many businesses remain fairly optimistic: British businesses are nearly twice as upbeat about their own prospects than that of the economy as a whole. Economic concerns are, however, a mirror of sorts: they reflect the wider risk landscape and the uncertainty businesses have in their ability to trade.

The shortage of skilled labour that has affected so many industries in 2021 is expected to continue into 2022. A worker shortage was the second most pressing risk identified by businesses, up 11 percentage points this year to the number two risk. Business concerns about the labour shortage run deep, with 69% of businesses saying they are ‘worried’, making it the second biggest concern for companies. And it is the most urgent of all risks, with 71% of the businesses that are worried about this saying that solving the worker shortage was ‘urgent’.

But developing a pipeline of skilled labour can take years. Businesses need to consider how they can address the issue in the short-term, such as automating processes where possible and focusing on employee mental health and wellbeing to help retain and attract skilled workers and ensure appropriate succession planning is in place for the longer term.

Brexit continues to be a major concern for British businesses, and this is likely to continue into 2022. Companies of all sizes and across most sectors told us that Brexit will have a negative long-term impact on their business.

There have been, as expected, trading frictions with the European Union. For many businesses the European Union was a source of both suppliers and customers, and Brexit has made trading with them more difficult. Similarly, the much-discussed global trade has not come online quickly or effectively enough to replace it.

Brexit has influenced another risk facing British businesses – supply chain disruption. While the supply chain can be subject to a number of risks – worker shortages and Brexit, but equally the global impact of Covid-19 – businesses can mitigate this by considering how they can remain resilient and de-risk their supply chain, whether finding more local suppliers, reducing any significant supplier dependencies, or creating strong back-up options.

Perhaps most notably, climate change and environmental risks (including extreme weather events) were not among the top risks identified by business. This despite a year which saw Storm Christoph bring a month’s worth of rainfall to parts of the UK in just three days, wildfires in California and Greece, and widespread flooding in Germany.

The Climate agenda is not going away – we must each take responsibility for the climate risks in our own industry. To this end, earlier this year Aviva launched our Building Future Communities campaign which calls for long-term action on how we build and protect properties in a sustainable way for a future where climate change is a reality.

There is no shortage of difficult, pressing risks facing businesses in the coming year. But British businesses are strong, resilient and will emerge from the challenges of the current pandemic. Climate change, however, remains the most significant long-term risk, not just for business, but for humanity. Failure to address the climate emergency now jeopardises our collective future, and UK businesses cannot dismiss this as someone else’s responsibility.

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