UK business turning its back on climate fight as economic woes dominate

British businesses have abandoned their efforts to adapt to the rising threat of climate change as they switch all their attention to the fight against the threats of inflation and the cost of living.

Insurer Aviva has issued its annual Risk Insights Report which found that the risk of climate change did not rank within the top ten of the biggest risks faced by UK businesses.

Economic concerns were seen as the biggest risk, followed by a shortage of skilled staff and third was the ongoing impact of Brexit.

Adam Winslow, (above) CEO of Aviva UK & Ireland General Insurance said  businesses had to look at the threat posed by climate change despite the more immediate issues around the economic conditions in which they found themselves.

“If anything, recent years have taught us is we have to be prepared for the unexpected.”

He added: “If you look at the past year n February 2022 we has a number of storms, we had a heatwave in July and fires across much of the country, there were issues with subsidence, and we then saw a period of freezing weather with floods and escape of water after it thawed.

“The fact that it did not rate in the top ten risks this year, and for the third year in a row, is at odds with the environment and where we find ourselves in the world.”

The survey found that the smaller the firm the less they felt climate risks were on the agenda and the hope was that the efforts of the major corporates would trickle down to the SMEs, although pressure was already building as many customers were now questioning the climate efforts of their suppliers and trading partners.

“As an industry we should be concerned,” Winslow said.

His views were backed by Maria Crockart,  Aviva’s managing director SME, commercial lines, who said the fact that the number of firm which had said that climate change was in the top five risks they faced had fallen to 8% from the 11% figure in 2021 was “not the direction of travel that UK Plc needs to tackle climate change.

“However, of those who did identify the climate in their top five risks all had it as urgent or very urgent.”

The report found an onslaught of interconnected economic risks, from labour shortages to supply chain disruption, have pushed UK business leaders to the brink as economic concerns top the list of boardroom worries.

The ongoing cost-of-living crisis is weighing on businesses’ confidence. Two-thirds (63%) of business leaders said they are ‘worried’ about the impact of the cost of living on their business, while 29% said the crisis will have a ‘serious’ impact on their business.

Six of the top 10 risks business leaders are concerned about are related to the economy. In addition to economic concerns (#1), business leaders told Aviva that labour shortages (#2), continued uncertainty over Brexit (#3), supply chain disruption (#5), interruption to business operations (#6), and market developments (#9) are also pressing.

Amid widespread economic pressures and concerns, a fifth of UK businesses (21%) have reduced, or considered reducing, their insurance cover over the last year. However, Aviva’s estimate based on an analysis of its customer portfolio is that 50% of UK businesses are underinsured to some degree, and that 40% of policies with buildings have at least one premises suspected to be underinsured by 20%.

“While businesses will understandably be monitoring expenditure, Aviva warns that cutting corners on insurance can leave them exposed to considerable risk,” added the report. “High inflation, supply chain disruption and labour shortages are impacting the amount businesses need to insure themselves for, as well as the duration of cover for business interruption insurance to help protect them in the event of a major loss.”

Winslow added: “During 2022 cost pressures evolved into a full-blown cost-of-living crisis across the UK economy, driven by systemic inflation, the impact of the war in Ukraine and enduring post-Brexit and post-Covid pressures.

“While the risk profile for many companies has altered dramatically, many businesses have not taken action to ensure their insurance is relevant to how they operate today. Our review of policies, demonstrating that 50% of businesses are underinsured, is concerning.

“Businesses are all too aware of the impact of economic pressures on operations, but many may not appreciate the compounding effect of inflation or supply chain disruption in terms of insurance cover. Underinsurance within the SME community may not be new, but the threat it poses is now at a critical point.

“Businesses that have not updated their insured value in the last couple of years are likely to find the costs of rebuilding or replacing buildings and equipment has materially increased, compared with what they are covered for. This level of underinsurance can lead to unexpected and unwelcome additional costs, should the business find itself needing to claim.

“Supply chain disruption or failure may massively extend the time it would take a business to get back on its feet in the aftermath of a major incident. It is really important that companies consider this when assessing their business interruption cover, and how long it would take them to return to normal operations in the event of a significant loss such as a flood or fire.”

Amid widespread economic pressures and concerns, a fifth of UK businesses (21%) have reduced, or considered reducing, their insurance cover over the last year. However, Aviva’s estimate based on an analysis of its customer portfolio is that 50% of UK businesses are underinsured to some degree, and that 40% of policies with buildings have at least one premises suspected to be underinsured by 20%.

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