Business leaders who self-certify as feeling “very prepared” for an economic downturn are more likely to see risk as interconnected and have a greater appetite for it in the face of an anticipated recession, Aon has found.
“The risk and environment, candidly, is moving at a pace we have not seen before – we're seeing a level of volatility in and around risk in areas that we've not seen before; risks themselves are much, much more interconnected than they've ever been in the past,” Lambros Lambrou, Aon Commercial Risk Solutions CEO, told Insurance Business.
“Against that risk environment, we're seeing this difference in approach around leaders that are leaning into risk and really taking many of the lessons out of COVID.”
Sixty-one percent of leaders responding to an Aon survey who said they felt “very prepared” for a recession agreed that risk is all interconnected, versus 36% who said they were not very prepared.
Sixty-two percent of very prepared leaders also agreed that a good external advisor or consultant could aid them with making good decisions and dealing with risk, while just 33% of self-certified “not very prepared” leaders agreed.
“What we are seeing is that they [businesses that feel very prepared] do feel that external advisors and consultants are playing an important role in helping them address those long-term risks,” Lambrou said.
The COVID-19 pandemic and responses to it have helped some businesses better understand the risk environment, according to Lambrou, as risks are becoming increasingly interconnected with implications for how the insurance industry should look at cover.
“Many risks over time have been protected in almost siloed lanes of risks, and now what we're seeing – we've seen it through COVID, we're seeing it as we emerge from COVID – is that as risk becomes more interconnected the types of solutions that clients will need that are best able to be able to respond to those interconnected risks need to evolve,” Lambrou said.
“They can no longer be monoline in their approach, which is traditionally the way that the insurance industry has been able to deliver those types of solutions.”
The survey found differences between how very prepared feeling leaders had sought to tackle any potential recessionary impact and the current risk environment compared to those who felt less prepared.
Companies that did not feel very prepared were more likely to have delayed a capital investment, at 54%, compared to their very prepared peers, of which 45% said their firm had taken such action – a gap of nine percentage points.
Very prepared businesses were also less likely to have slowed or frozen hiring – 49% of very prepared businesses said they had done so, versus 54% of less prepared respondents.
Sixty-eight percent of very prepared leaders said they had looked to reduce marketing budgets, compared to 56% of not very prepared survey takers, while 66% of very prepared respondents had hiked prices contrasted with 60% who said they were not very prepared.
Aon surveyed 800 business leaders across the US, UK, and European Union and respondents represented companies with more than 500 employees.
Seventy nine percent of leaders surveyed by Aon said they expected a recession within the next year, with 43% having said they believed this was “very likely”.
Inflation (43%), a financial crisis (42%), and energy supply (41%) were the top three risks that executives and leaders said their businesses were spending a “great deal” of time on, with cyberattacks (40%) falling from first to fourth place. Supply chain disruption (39%) rounded out the top five.
“The very prepared leaders are certainly spending a lot more time looking, focusing in on and leaning in on these long-term risks [like climate], and as they do that, they are looking for the counsel of an external adviser to improve their company's ability to make good decisions and deal with risks in and around that,” Lambrou said.
“When we think about the risks of today, whilst there is a reprioritisation in the risk landscape, and what the C-suite is looking at, and what the risk management community is looking at, what we can see is that as leaders are thinking about how to embrace risk as an opportunity, those prepared leaders are not hitting the brakes on long term investments or ignoring long term risks, even when facing a looming recession.”