Executives around the world are wary of an array of risks that pose obstacles to their business’s success, with just 59% expressing confidence in their company’s ability to grow and prosper, according to the first ever global Risk and Confidence Survey released by CNA Hardy. The highest level of confidence among business leaders was seen in Continental Europe (70%), followed by 64% of North American executives, 53% of Asia-Pacific leaders, and just 39% of those in the UK currently confident in future growth.
“Economic risk is top of the leader board in every region bar Continental Europe and it hits business confidence hardest where businesses feel they have the most to lose – namely in the UK where Brexit is paralyzing decision-making, and Asia where trade wars are distorting trade patterns,” explained Nick Creatura, president and CEO of CNA Canada. “In North America and Continental Europe, by contrast, comparatively strong economic growth means business leaders are far more confident, despite the overall sense that they are operating in a moderate to high risk environment.”
In the US, reduced regulation, tax cuts and higher employment numbers were positive signs to business executives, while those in Canada have seen the economy grow at a fast rate as exports surged in the second quarter of 2018.
Yet despite the uplifting economic backdrop, the report points out that executives’ confidence is local and linked to trade and economic concerns, while risk is global. No matter their confidence level, Creatura highlighted that executives in every region surveyed are prioritizing international expansion to fuel growth while pulling back focus on domestic markets. This in itself brings its own risks since the wave of protectionist economic policies seen in several regions has the potential to undercut companies’ global growth ambitions.
“Global growth tempts North American firms. While local markets remain top priority, over a third of business leaders are looking outwards to Continental Europe for future growth in spite of concerns over Brexit and trade wars,” Creatura told Insurance Business. “Of course, confidence in the growth opportunities of overseas markets does not come without risk. While the majority were confident they could deal with any fallout from potential trade wars, a sizeable minority, almost four in 10 (37%) stated that these risks were hitting their growth plans and were worried by the potential associated risks of customer attrition, rising costs, margin pressure and supply chain disruption.”
Another top concern for business leaders surveyed in the report was cyber risk, which became even more evident in 2018 and early 2019 as hackers threatened to leak files related to 9/11, the Marriott breach affected up to 500 million Starwood property guests over four years, and social media behemoth Facebook proved that it’s not impervious to cyber criminals.
“Almost half of executives globally (49%) say cyber risk is set to increase, making it the top risk globally in six months’ time. Interestingly, 50% of large companies, with turnover in excess of US$1.3 billion, said the risk was likely to increase compared with only 36% of small and 45% of mid-size companies,” commented Creatura.
Meanwhile, investments in technology that are leading companies to become more dependent on their digital capabilities and connect more devices to the internet are increasing the scope for disruption from a cyberattack or data breach.
“Technology ranks third on the risk radar for North American companies, the highest for any region globally,” said Creatura. “Technology is often one of the highest cost items on the balance sheet. Executives are acutely conscious of the downside in making the wrong investment decision, the difficulty of keeping pace with technological change and the dangers inherent in reliance on technology to keep the business efficient, competitive and resilient in the face of rising cyber threats. These are becoming increasingly global in nature and adding layers of complexity for businesses with international operations.”
As businesses face risks that are more interconnected than ever before, CNA outlines three priorities for leaders to focus on in this shifting landscape: leadership, culture, and strategy.
“Companies need more than the traditional financial and legal skills. They also need a broader, more diverse range of skills at the board and senior management levels who can help identify and manage the threats to brand reputation posed, for example, by failure to prepare adequately for Brexit or a cyber hit to the supply chain,” explained Creatura, adding that on the culture front, “Organizations also need to think about embedding a more proactive approach to loss and risk prevention. Large losses today are caused by the same drivers as 20 years ago – fire and flood. If businesses cannot master these obvious and tangible risks, inevitably they will struggle in the face of more complex, global, interconnected and intangible risks.”
In terms of strategy, leadership teams that operate within a more proactive risk culture will be better placed to invest in the technology, people and processes that will in turn facilitate growth. Accordingly, risk management will also see an evolution in this interconnected risk environment.
“Risk management is increasingly about service and support as much as balance sheet risk transfer. For that to work effectively there has to be better dialogue. Insurance is a partnership, not a panacea,” said Creatura.