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Risk Blind-Spots Could Undermine UK Companies’ Growth Prospects

A combination of the shock UK election result, ongoing concerns over the progress of Brexit and a wave of physical and cyber terror attacks, have taken a dramatic toll on British businesses’ confidence levels, according to the latest CNA Hardy Risk and Confidence Survey.

Risk blind-spots could undermine UK companies' growth prospects

  • Confidence is down but businesses are pressing ahead – although only 28% of business leaders feel confident in growth prospects, over 50% are pressing ahead with hiring and tech investments.
  • As businesses go abroad for growth, political and cyber risks dominate - 63% of business leaders cite Europe as their preferred growth market but 26% identify political risk as their top concern today. 48% predict cyber will be their top concern by Spring '18.
  • Failure to recognise a trio of boardroom risks threatens growth – corporate, compliance and supply chain are low on the risk radar, threatening growth as operations get more international and more complex.

19th October 2017 – A combination of the shock UK election result, ongoing concerns over the progress of Brexit and a wave of physical and cyber terror attacks, have taken a dramatic toll on British businesses' confidence levels. 71% of business leaders were confident they could grow and prosper in Spring '17. In Autumn '17 only 28% feel the same way.

Despite diminishing confidence levels, business leaders are looking for growth in Europe, and increasingly Asia. 63% identify Europe as the market with the strongest growth potential in Autumn '17. Looking ahead to Spring '18, interest in Asia almost doubles from 8-13%.

But as companies go more global and their risk exposure rises, three fundamental boardroom risks – corporate, regulatory and supply chain – are being overlooked, threatening their future growth plans.

These are some of the key findings from the second CNA Hardy Risk and Confidence survey report launched today, which examines business confidence and risk perceptions of 450 business leaders of UK multinational companies.

"It's easy to see how political and economic risk dominate the headlines, but they are not potential business killers like boardroom or supply chain risk. If companies don't do their homework, directors are at immediate and significant personal risk. With less than 10% of business leaders ranking supply chain as an area of concern, and only 8% worried about corporate and regulatory risk, it's perturbing that these fundamental boardroom risks have dropped down the risk radar. These are significant risk blind-spots for UK firms with international growth ambitions." Dave Brosnan, CEO, CNA Hardy

Political and economic risk loom large in Autumn '17

Political and economic risk top the risk leader-board in Autumn '17 as the risks that concern business leaders the most. Larger firms with turnover of £1bn+ expressed the greatest concern regarding political risk, with 29% citing risks compared with only 23% of smaller businesses with turnover sub £5-25m.

As businesses look ahead to Spring '18 over half (53%) believe that political risk will remain at current levels and 54% think levels of economic risk will stay the same.

Risk radar shifts to cyber and tech risk in Spring '18

As businesses look ahead to Spring '18 there is a marked shift in risk concern. Almost half (48%) of businesses think they will be most concerned by cyber risk and that the threat of malware, viruses, hacks or data theft will increase. A further 39% identify tech risk, such as failure of tech systems and processes to keep them competitive, as their top concern by Spring '18. Tech firms in particular, are most concerned by cyber risk, with 62% believing this risk will increase by Spring '18 compared to 48% of the other sector C-suite respondents.

Boardroom risks fail to register

55% of business leaders in Spring '17 predicted boardroom risks (a combination of corporate, supply chain and compliance risk) would be their major concern by Autumn '17, but today only 22% of businesses gave it a top ranking. The only sector where business leaders held fast to their belief that boardroom risk would be their top concern was Tech.

Weak prioritisation of corporate risk across all sectors

Corporate risks (fraud, corruption, poor governance and pension exposure) were low on the risk radar for business leaders across all sectors, but in particular with manufacturing (0%), financial services (2%) and construction (2%) firms. Tech businesses again topped the ranking with 30% ranking corporate risk as a concern.

"Tech businesses seem more savvy regarding boardroom risk and stand head and shoulders above all other sectors in their understanding of the significant damage that failure to manage corporate risk can do to a company brand." Dave Brosnan, CEO, CNA Hardy.

Supply chain risk fails to command attention

Another risk that consistently fails to command attention in the boardroom is supply chain risk, which is increasingly vulnerable both to a hard Brexit and to increasing cyber attacks.

"Europe is the UK's largest trading partner and the market cited as key to growth by almost two thirds of respondents. In a hard Brexit scenario, there will undoubtedly be tremendous disruption at ports. But we are equally concerned about the threat to supply chains posed by cyber attacks. Our experience with companies suffering from supply chain disruption following the cyber attacks this summer suggests this could be as big a risk as Brexit. Many businesses don't seem to have a plan B in terms of supply chain." Patrick Gage, CUO, CNA Hardy.

Perception of compliance risk is patchy

Only three sectors – fintech, manufacturing and professional services – have 10% or more business leaders rating compliance as the risk that most concerns them. It is surprising that some highly regulated sectors – in particular healthcare and life science are so dramatically off the pace.

Caroline White, CNA Hardy Healthcare Risk Director comments: "Nothing has changed in the past six months in terms of the regulatory burden on healthcare and life science businesses to explain the result, and in general UK-based businesses have a strong track record of compliance. While boards clearly have more confidence in their understanding and control of regulatory risks, they are much less confident about cyber risk – particularly after WannaCry exposed vulnerabilities right across the industry. Therefore, while cyber risk is understandably the industry's current dominant concern, the introduction of GDPR means boards will be focusing on both cyber and compliance risk as the May 2018 implementation deadline looms."

Insurers need to step up

"These three risk blind-spots – corporate, compliance and supply chain – are a concern.

When companies go more global, their operations will inevitably become more complex. They will face increased exposure to multiple regulatory regimes, different business practices and a broader, more diverse supply network – all at a time when international regulations are getting tougher. These survey results reveal that companies are underestimating complexity on this scale and putting their growth plans at risk.

"Our hope is that this research will facilitate better dialogue and help us to partner more effectively with brokers and insureds to manage risk and drive growth," Patrick Gage, CUO, CNA Hardy.

Report Methodology

The CNA Hardy Risk and Confidence Survey examines the business confidence levels and risk perceptions of 450 business leaders and risk managers of UK companies with turnover from £5m to over £1bn from nine different industry sectors: manufacturing, construction, transportation & logistics, financial services, professional services, tech, fintech, healthcare and life science.

Opinion Matters, an independent research firm, conducted an online survey over a four-week period in August 2017. Luther Pendragon, an independent communications agency, spoke with underwriting and claims experts within CNA Hardy, and worked with CNA Hardy to analyse the data and prepare the report.

About CNA Hardy 
CNA Hardy, acting through Hardy (Underwriting Agencies) Limited and CNA Insurance Company Limited, independent wholly-owned UK subsidiaries, are a leading specialist commercial insurance provider for clients within both the Lloyd's and company markets. For more information, please visit CNA Hardy at www.cnahardy.com.

CNA is the eighth largest commercial insurer in the United States. CNA provides a broad range of standard and specialized property and casualty insurance products and services for businesses and professionals in the U.S., Canada, Europe and Asia, backed by 120 years of experience and more than $45 billion of assets. For more information about CNA visit our website at www.cna.com.

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The information contained in this document does not represent a complete analysis of the topics presented and is provided for information purposes only. It is not intended as legal advice and no responsibility can be accepted by any CNA Hardy group company for any reliance placed upon it.

Georgina Peters-Venzano +44 (0)20 7645 4968 | +44 (0)77 3944 8121
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