The past five years have been eventful to say the least, for both consumers and businesses. With Brexit, COVID and now war in Europe, businesses have faced a series of unforeseen disruptions. Naturally, many corporations found themselves lacking contingency plans, especially with regards to the pandemic. In fact, any executive who entered a boardroom to recommend pandemic insurance prior to 2019 may well have been laughed out of there. Though estimates vary, the private sector in the UK lost hundreds of billions of pounds throughout the course of the pandemic, leaving many businesses struggling to cope.
In addition to these unexpected obstacles, there have been a couple of trends over the past decade that have presented new risks for businesses in the UK. Chief among them is the increase in cyberattacks and general cybersecurity concerns. Research from Beaming suggests that cyberattacks have been increasing by roughly 11% annually since 2016. The increase is also exponential, with UK businesses experiencing a 62% increase in cyber threats since 2020. These typically come from China, the US and India though it is often unclear why.
Perhaps an even more concerning trend in the long run is climate change. Not only could the effects be detrimental to a business’ operations, but they are also extremely unpredictable. In a 2021 report, the World Economic Forum ranked ‘extreme weather’, ‘climate action failure’ and ‘human environmental damage’ as the top 3 global risks to industry in terms of likelihood. Notably, these are all environmental concerns. Needless to say, the highest ranked global risk in terms of impact was ‘infectious diseases.’
Overall, businesses now face many new, unanticipated challenges. One result of this increased risk has been the explosive growth of the risk management industry. Many firms provide enterprise risk management (ERM), a service whereby the firm identifies potential events or developments that could jeopardise the operations of a given business. Typically, these risks are separated into four categories:
• Financial risks: risks that solely concern revenue and costs
• Operational risks: risks that directly impact the physical operation of the business
• Strategic risks: risks that relate to strategic choices taken by the business
• Hazard risks: risks that can cause threat to health, property and life
ERM had previously been routine process. Firms would either work in-house or via external consultants to identify the risks they faced and deal with them either through avoidance, insurance or contingency planning. This has remained roughly the same, but the variables are now far less predictable and – as advanced as they are – modelling systems used to calculate risks cannot keep up. Despite these limitations, the risk analytics market is forecasted to grow from 26.81 billion USD in 2020 to 52.33 billion USD by 2026.
There are myriad factors behind this growth, one being the inevitable panic response to COVID from businesses in general. It is also important to note that risk analysts now have access to larger amounts of data and more advanced tools to process said data, meaning that their analysis is more fruitful than it ever has been. That being said, the key factor behind this exponential growth is undoubtedly the explosion in demand for risk analytics which, in turn, is driven by the general increase in risk.
On a more macro scale, we should all keep an eye on the risk management industry as it provides a relatively accurate indicator of just how ‘risky’ the world is becoming, albeit to industry as opposed to individuals. Of course, businesses are making use of risk analytics to protect their own interests. However, the wellbeing of industry and the wellbeing of society are inextricably linked. The market is evidently convinced that risk is becoming more and more prevalent and that should concern us all.
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