- Risk levels are broadly consistent around the world, with 82% of business leaders feeling they operate in a moderate to high risk environment.
- Confidence levels vary dramatically from 39% in the UK to 70% in Continental Europe as protectionist economic policy threatens to undermine companies' international growth ambitions.
- Businesses everywhere are prioritising investment in technology and R&D over people.
- Look ahead six months and increased dependency on technology means cyber overtakes economic risk as the biggest perceived threat to business, with the largest companies feeling the least confident.
- Increasingly global and interconnected risks mean companies must focus on leadership, culture and strategy to stay ahead.
19th November 2018 Less than two thirds (59%) of business executives worldwide are currently confident about the ability of their business to grow and prosper, according to the latest edition of CNA Hardy's Risk and Confidence Survey, released today. However, there are substantial regional variations, with 70% of leaders in Continental Europe expressing confidence, well ahead of those in North America (64%), Asia Pacific (53%) and the UK (39%).
In terms of threat perception, there is greater consensus: economic risk is the primary concern for 22% of business leaders worldwide, ranking in the two top risks in every region ahead of cyber (19%), technology (14%) and political risk (13%).
Dave Brosnan, CEO, CNA Hardy, commented: "Economic risk is top of the leader board in every region bar Continental Europe and it hits business confidence hardest where organisations feel they have most to lose – namely in the UK where Brexit is paralysing decision-making and in Asia where trade wars are distorting trade patterns.
"By contrast, in North America and Continental Europe, 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.
"However, what is interesting to note is that no matter what their confidence levels are, executives in every single region are prioritising international expansion to fuel growth. While this bullish approach is positive from a business perspective, growth should be treated with caution. Increasingly protectionist economic policy could undermine companies' international growth ambitions. Executing a global growth strategy is much harder against political and economic headwinds."
Rising technology investment sees tech and cyber risk rise
Alongside international expansion, executives globally are showing a strong preference for technology and R&D investments over people. 74% of business leaders worldwide are prioritising technology spend and 70% R&D spend in order to support topline growth.
Historically, CNA Hardy research data has shown an equal preference for technology and talent to support companies' growth ambitions. In November 2018, however, hiring of temporary staff was a lower priority than spending on corporate development (e.g. M&A) or plant and equipment.
This shift in investment priorities has also altered risk perceptions, making technology1 a global top three risk, with 14% of leaders globally ranking it as their top risk now and 37% suggesting the risk will increase in six months' time.
Dave Brosnan commented: "Although technology is essential to fuel the global expansion on which business growth depends, in many ways it is also the soft under-belly of the 4th industrial revolution. As technology becomes ever more critical and embedded, so managing it becomes harder and the risk of getting it wrong increases. Greater dependence inevitably paves the way for greater cyber exposure and other technology-related risks. It is an inescapable but vicious circle.
"It is no wonder then, that looking ahead six months to May '19, cyber risk takes centre stage as the top risk globally, with almost half (49%) of executives saying it is set to increase. Interestingly, 50% of large companies, with turnover in excess of $US1.3bn, said the risk was likely to increase compared with only 36% of small and 45% of mid-size companies. Our data suggests that SMEs are not viewing cyber as a priority as they appear to feel less vulnerable to the risk. This is a false impression, and insurers need to do more to highlight the risk of cyber to businesses of all sizes."
Companies must prepare for interconnected risks
The top three business risks economic, cyber and technology are global, inter-connected and complex.
In our view, companies need more than the traditional financial and legal skills if they are to manage these risks. They also need a broader, more diverse range of skills on the board to help identify and manage the threats to brand reputation posed, for example, by failure to prepare adequately for Brexit or a disruption to the supply chain caused by a cyber-attack. Organisations also need to think about embedding a more proactive approach to loss and risk prevention. Stronger leadership teams, operating within a more proactive risk culture will be better placed to make the strategic investments in technology, people and processes that will enable growth.
Dave Brosnan commented: "Large losses today are caused by the same drivers as twenty years ago – fire and flood. If businesses cannot master these more obvious risks, inevitably they will struggle when faced with more complex, global and interconnected risks. Leadership, culture and strategy are key as insurers get better at understanding and responding to these risks and communicating what needs to change.
"Risk management is as much about service and support as it is about balance sheet risk transfer, and for that to work effectively there has to be better dialogue between clients and the industry."
North America strides forward, confidence riding high
- 86% of US and Canadian firms see the risk environment as being high or moderately high, dropping by just 2 percentage points to 84% in six months' time.
- Despite the high-risk perception, with the economy cited by a sizeable proportion as the key to this sentiment, business leaders remain bullish. Almost two thirds (64%) describe themselves as confident now, with that number rising to 70% in six months' time.
- Global growth tempts US and Canadian firms. While local markets remain the key focus, investment is declining in favour of other regions, with interest in Asia rising by 4 percentage points and the rest of the world by 5 percentage points. However, investment in the UK and Europe is set to decline 5 percentage points as Brexit complicates trade deals.
- Trade wars are impacting the growth plans of well over a third (37%) of business leaders but almost two thirds (61%) believe Brexit will not have a significant impact. Key risk concerns are economic (21% rank this top), cyber (20%) and technology (16%). Conversely, corporate2, supply chain and regulatory risks are given low priority.
Nick Creatura, President and CEO, CNA Canada commented: "The US and Canada are experiencing the twin phenomena of high growth and high risk. The high levels of confidence among business leaders across North America appear to be driven by local factors, predominantly the strength of their economies. In contrast, risks are becoming increasingly global – such as trade wars and Brexit – which are beyond the immediate control of business leaders."
Is the Asia Pacific tiger losing its roar?
- Asia Pacific business leaders are second only to North America in terms of risk perception. Some 82% believe they operate in a moderate to high risk environment.
- Economic and political risks are at the forefront of people's minds, cited by 26% and 14% of business leaders respectively, reflecting concerns about the impact of trade war disruptions and protectionism on future growth.
- Trade wars are impacting the growth plans of well over a third (38%) of business leaders. Just over half (56%) believe Brexit will have a significant impact.
- Against this backdrop, executives have the lowest confidence of any region save the UK. Only 53% of executives say they are confident now, with the figure rising to 61% in six months' time.
- Despite low confidence, growth remains a priority. Investment in both technology and R&D is a key area of focus, along with growing topline sales.
Rob Hands, CEO, CNA Hardy Asia commented: "Asia has experienced a long period of rapid growth, underpinned by a buoyant Chinese economy and strong demand. The on-going trade war with the US may cause an economic slowdown in China, and we can see increasing caution amongst company executives as a result."
UK and Europe: a continent divided by Brexit
- Globally, Continental Europe is the most confident region in the world, with 70% of executives saying they are confident now. That number rises to 73% in six months' time. In contrast, UK business confidence is the lowest in the world, with just 39% confident now, rising to 45% in six months' time.
- The key driver of diverging sentiment across the region is economic risk, courtesy of Brexit, which is felt much more acutely by UK executives 23% of whom rank it as their top risk, compared with 16% in Continental Europe.
- In line with high confidence levels, Continental Europe leaders have the most positive view on risk with 74% feeling they operate in a moderate to high risk environment; seven percentage points fewer than in the UK, where 81% of leaders perceive they operate in a moderate to high risk environment.
- Continental European businesses are much more likely to be proceeding with spending on business fundamentals than UK businesses and by a significant margin. The gap in technology investment, for example, is 18 percentage points and for hiring temporary staff, it's 25 percentage points.
- The UK and Continental Europe both continue to look for growth, but not from each other, as their existing EU trading relationship looks set to come to an end. While the UK sees interest in the rest of the world rise three-fold, Continental European leaders are turning increasingly to Asia (+8 percentage points) and North America (+7 percentage points).
Stuart Middleton, CEO, CNA Hardy Europe commented: "The Channel between Europe and the UK is narrow, but the gulf in confidence between the two markets is enormous. Continental European businesses have the luxury of balancing cyber, technology and the economy as their top concerns. In the UK, it's economic risk that is dominating the C-suite risk agenda and sucking up all the oxygen in the boardroom."
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About the research
Opinion Matters, an independent research agency, conducted quantitative research on behalf of CNA Hardy. This research was undertaken during July and September 2018, via an online survey of 1,500 business leaders of multinational firms with operations in Europe.
Company size ranged from businesses with turnover of US$6.5m up to more than US$1.3bn.
The regional sample split was:
- 450 firms based in the UK
- 250 firms based in France and Germany
- 450 firms based in the USA
- 100 firms based in Canada
- 250 firms based in Singapore, South Korea & Australia
The survey respondents were evenly split from across the following industry sectors:
- Transportation and Logistics
- Financial Services
- Professional Services
- Healthcare (private)
- Life Science
In addition, Luther Pendragon, undertook telephone interviews with representatives across the target business sectors and CNA Hardy representatives based in the UK, North America, Continental Europe and Asia Pacific.
Luther Pendragon worked with CNA Hardy to analyse the data, write and prepare the November 2018 Global Risk and Confidence survey 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 one of the largest U.S. commercial property and casualty insurance companies. 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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1 Technology risk definition IT system failure, disruption from new tech-enabled competitors or start-ups
2 Corporate risk definition fraud, corruption, poor governance, pension exposure, poor corporate culture