North American executives’ confidence in the ability of their businesses to grow and prosper is on the decline from just six months ago, according to the latest edition of the Global Risk and Confidence Survey from CNA Hardy. However, the report notes that this trend is expected to reverse by November 2019 and looks more positive going into 2020, when 69% of executives are predicting business confidence, compared to just 59% today.
Topping the risk charts in the May 2019 survey was supply chain risk, which is at an all-time high thanks to a push-back on globalization and rise in protectionism, as well as economic and cyber risk, which continue to remain top-of-mind concerns for executives. Reputation risk is likewise an issue that executives are eyeing, with many in the region divided on how to handle the risk – the CNA survey states that the main concern in the US is securing board buy-in, while in Canada, executives are focused on the difficulty of managing the fallout of negative publicity.
In spite of this dip in confidence, Canada is still the second most confident region behind Asia, though troubles abroad are having some implications on confidence at home.
“Canada is a trading nation and we are heavily dependent on foreign trade for our economy’s health,” said Nick Creatura, CNA Canada’s president and CEO. “The continued political, regulatory changes and economic uncertainty of the last months coupled with ongoing trade disputes at home and further afield, failure to make any grand leaps forward with climate change mitigation, and an increase in extreme weather events only heightens businesses’ risk perception and sense of caution around supply chain. This, however, is the new normal, and businesses operating in a new global landscape no longer have the luxury or security of predictability.”
In that vein, CNA’s survey from six months ago reported that 61% of North American executives saw Brexit as having little or no impact on their trade with the UK or Europe, and Creatura believes that number would stay the same today. Local factors, such as trade wars and political uncertainty, would likely have a greater impact on Canadian confidence than Brexit.
“People tend to focus on what is right in front of them and here, the economic omens are weaker. Economic growth undershot analysts’ expectations slightly at the end of 2018, with domestic demand for goods and services in decline,” explained Creatura. “Against this backdrop, Canadian business leaders’ expectations for the year ahead are somewhat cooler than their US peers. Coupled with our current political climate and upcoming elections, it is understandable that confidence has dipped.”
In the Great White North, confidence fell by 8% since November 2018, but that figure is set to rise to 65% by October 2019, indicating that the future is bright.
In terms of the risks that businesses face, each region faces some unique challenges, but the data in the report shows clearly that the overall pattern of risk is becoming more global, interconnected, and complex.
“Changing business models mean changing risks. Cyber risk, for example, didn’t exist even 10 years ago, reputation risk was not so challenging in the pre-social media era, [and] these risks are not confined by country borders,” said Creatura, adding that the interconnectivity of risk will test managements’ capabilities and organizational structures as C-suites look for global solutions, and not local patchworks.
“The insurance community will need to become more attuned to the challenges interconnected risk raises in terms of politics, economics, supply chain, regulatory compliance, and cyber threats that flow seamlessly through and across continents,” added CNA Canada’s leader. “This challenge will require a more joined-up approach from insurers. We will need to carefully evaluate the quality and efficacy of local partner networks, invest in higher quality partnerships, and ensure rapid adoption of technology-enabled solutions, including blockchain and smart contracts, which will provide enhanced visibility, security, and service.”
Meanwhile, as we see the proliferation of tangible and intangible risks, such as intellectual property and reputation, insurers, brokers and risk managers will have to work together to build resilience into business systems, processes, and assets. CNA Canada is already finding that there’s significant appetite among its broker network and insureds for in-depth discussions and insight around what’s driving boardroom risk, as well as strategies for risk mitigation.
“In the same way the market has found a way to model the cost of non-physical damage business interruption claims as part of terror and political violence cover, we believe there will be appetite to model and mitigate the cost of managing reputation risk and the damage to brand value caused by specific triggers,” Creatura told Insurance Business.
