The Great Balancing Act of 2022: How Can We Use Data to Maintain Business Optimism in the Face of Resilience Fatigue?

By: | May 13, 2022

Bethany Greenwood is the Global Head of Specialty Risks for Beazley. She can be reached at [email protected].

For business leaders everywhere, 2022 is off to yet another rocky start.

The sense of global optimism that was prevalent as Omicron receded and the pandemic drew closer to a conclusion has been tempered by the new challenges presented by the war in Ukraine.

Even without these major global factors, most businesses have entered 2022 with myriad complex challenges to manage, from skyrocketing inflation to the Great Resignation.

The balance between renewed confidence and professional exhaustion has never been greater.

War notwithstanding, as the global economy emerges from the pandemic, business leaders are largely optimistic, expressing confidence that they will be more resilient in 2022. Our Risk & Resilience study, conducted in 2021, revealed that most organizations have leveraged the pandemic to improve operations from the ground up leading the vast majority (84%) of business leaders to believe they will be more resilient in 2022.

But such high levels of optimism do not mean that business risks have gone away.

Indeed, over a third expect that supply chain and business interruption concerns will dominate boardroom agendas and that employer and reputation risks will prove challenging.

Compounding the problem, industries that have been hardest hit during the pandemic, including health, retail, travel, education and manufacturing, are at risk of resilience fatigue.

Facing ongoing high levels of staff shortages, complex logistic challenges, and the need to re-shape the workplace culture to respond to different staff, supplier and client expectations, it may be more challenging than ever to continue to gamely keep all of the balls in the air.

Against this backdrop, there can be little doubt that the complex and highly integrated risk environment will drive a sharp rise in claims severity, with settlement amounts far exceeding previous levels.

As this threat grows, clients will likely demand improved granularity around how insurance will respond. The industry will want to be clear at this time that it is not inadvertently including COVID-19 risk in policies.

COVID Is Supercharging Employment Risk

One area where COVID-19 is expected to have a significant impact on business risk profiles is employer liability. In a world where there are no longer any reliable ‘right’ answers, we may expect to see an increase in COVID-19 claims, including challenges over vaccine mandates in the workplace, wrongful termination, discrimination claims and even harassment in terms of working practice expectations.

It is concerning therefore that our research reveals a low executive perception of this risk, with employer risk ranked top by a median of just 11% of business leaders on both sides of the Atlantic.

In our view, this may be short sighted. We anticipate that cases will likely start with employment practices liability and discrimination issues.

But if the trend becomes wider spread, this could easily morph into management liability or boardroom issues if we see COVID-19-related class actions.

ESG Reporting Is a Minefield

Rising stakeholder expectations around environmental, social, and governance (ESG) concerns and new reporting standards are another area of complex risk that is re-shaping corporate strategy and re-setting relations with investors and shareholders.

Pressure to provide better guidance about ESG credentials is both an opportunity and a risk.

On the one hand, new regulations may clarify what is expected of companies. On the other, they pose risks that businesses, in their haste to comply with new regulations, exaggerate their green credentials or release inaccurate, misleading or misstated information.

Any companies that miss regulatory or self-imposed targets could potentially face litigation and even companies that succeed in achieving their ESG goals will face the risk of being accused of greenwashing, making this an area we are increasingly conscious of in our underwriting.

Supply Chain Concerns Dominate

Supply chain risk is ranked high by business leaders in our research, and resilience levels are relatively low. But with economists predicting that supply chain challenges are likely to persist throughout this year and potentially even longer.

There is a clear threat that companies which are badly prepared will see valuation impacts in 2022.

Supply chain challenges, labor shortages and rising costs present real potential to drive claims activity as well as resulting losses. A major concern is reliance on specialized staff, who may be over-stretched or burnt out, or who may be covered for by under-trained substitutes, feeding into a worsening claims picture.

When valuations fall, it is inevitable that shareholder actions against directors will follow, something that may push supply chain issues even higher up the boardroom agenda as we look further ahead.

Traditional supply chain insurances might include contingent business interruption covers — such as lost income or extra expenses — but the real value of insurance is likely to come from more than traditional risk transfer policies.

Insurance Response to Complex Risks

Mitigating risk is no longer about responding to isolated incidents, nor will it be possible for companies to do it alone. In this climate, corporations will look to insurers to step in and help mitigate a raft of business risks.

These difficult market conditions will test the creativity of the insurance market and the resolve of some market players.

We anticipate working with insureds across industries to pool and interrogate data that in time may support a hub of centralized services adding risk management value, surrounded by more traditional risk transfer mechanisms.

This kind of integrated response will be essential as insureds look for long-term insurance partners with the expertise and insight to help them navigate the shifting sands of liability in what is an undeniably a more complex business risk landscape.

How the current sense of business optimism will balance out with a pervasive level of resilience fatigue remains to be seen.

Throughout the highs and lows, the insurance industry must continually seek new opportunities to support them in addressing and mitigating complex risk. &

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