Top 4 Business Risks Keeping Mid-Sized Company Executives Up at Night, According to a New QBE Report
Many business executives couldn’t imagine a more stressful year than 2020. A global pandemic, supply chain disruptions and political instability rattled businesses across the globe. Last year, as vaccines were distributed, pandemic fears abated a bit.
Yet in 2022, anxiety among executives actually increased, according to QBE’s 2022 Mid-Sized Company Risk Report. The report found that executive concern over a wide range of risks rose 18% on average, compared to 2021, and was also higher than in 2020, during the height of the pandemic.
Inflation and other macroeconomic conditions, political and social unrest, talent shortages and a shift to longer-term hybrid work arrangements are just some of the factors that have continued to create instability for business leaders this year.
The report features the results of a survey of risk management executives at companies with $200 million to $3 billion in annual revenue, who were asked about 12 macro and 97 micro risks. The survey measured concern by assessing the level of apprehension about each risk as well as how the risks ranked relative to each other. It found that, while executives have grown significantly more concerned about all of the 12 macro risks, they have not translated that concern into better preparedness.
“The uncertainty around a given risk did not necessarily match with a company’s ability to mitigate it,” said Thomas Fitzgerald, president of commercial insurance at QBE North America.
“There’s a distinct opportunity for mid-sized companies to lean on the expertise of their broker and insurer for risk management guidance in these areas.”
Here are the top four of the 12 macro concerns covered in the report.
1) Financial Risk
As in 2020 and 2021, financial risk ranked as the top issue mid-sized company executives are concerned about in 2022. Sixty percent of executives surveyed ranked financial risks among their top five concerns.
“Concerns about financial risk are likely directly related to the economic environment that we’re in,” said Christopher McGrath, head of middle market P&C insurance, QBE North America.
“The inflationary environment that we’re in and the potential for recession are driving these concerns.”
The executives ranked fraud and theft, cash flow and liquidity issues, increasing employee benefits costs and medical inflation as some of the top financial concerns they were worried about this year.
2) Digital Risk
With cybercrime on pace to cost $10.5 trillion globally each year by 2025, according to Cyber Crime magazine, it’s no wonder that digital risks once again ranked among executives’ top concerns.
“The uncertainty around ransomware, the uncertainty around ‘Can third parties hijack my systems and prevent me from being able to conduct business?’ has made digital risk a top concern over the last few years,” Fitzgerald said.
Cyber has remained a top concern across the three years that QBE has conducted this survey. As with the other macro risks, the concern increased. The percentage of executives who said they were highly concerned about digital risk increased to 73% in 2022, up from 64% in 2021 and 62% in 2020.
Cyberattacks, theft of critical data, corporate espionage, extended system outages and fears over disruptive technologies are all issues executives are watching as we head into the new year, according to the report.
“To a certain extent, data is what everybody’s business is right now, and the protection of your information, the way you undertake your business or the way you analyze your business is of utmost concern,” McGrath said.
3) Business Interruption Risks
Business interruption risk came in third on a ranked basis, with 51% of executives listing it as a top five concern.
“Business interruption is typically at the top of a list in relation to natural catastrophes,” McGrath said. “Now, when you couple that concern with the repercussions of the pandemic and fears about the impact cyberattacks could have on your business, business interruption as a potential issue becomes even more salient.”
Business interruption risks that executives were worried about included loss of critical suppliers and subcontractors, fragile supply chain exposures, critical infrastructure breakdowns and potential geopolitical perils.
Two of these categories — loss of critical suppliers/subcontractors and fragile supply chain risks — made the top 14 micro concerns for the first time, with 19% and 16% of executives listing them as a major threat, respectively.
“When we talk about supply chain, it’s not just the availability; it’s the cost of getting products and services,” Fitzgerald said.
“It seems like companies might be walking back a bit from the globalization of the supply chain.”
4) Organizational Concerns
While there were no shifts in executives’ top three macro concerns between the 2021 and 2022 reports, organizational risks overtook pandemic fears, liability risk and regulatory and legislative risk to become the fourth top concern.
“Organizational concerns — mostly around M&A and remote work/hybrid work arrangements — spiked up the list,” McGrath said.
Talent attraction and retention, mergers and acquisitions and hybrid work were all issues that helped propel organizational risk into executives’ top four concerns. All of these factors are very much still in flux.
The fear of failing to realize the synergies and benefits of an M&A deal was at the top of mid-sized company executives’ concerns within the organizational risk category. Fitzgerald believes that M&A deals conducted over Zoom in 2020 are part of the reason.
“My view on why M&A risk was called out here is that a lot of deals got done in 2020 and 2021 when people never actually met. It was all done virtually,” Fitzgerald said.
“If you look at some of the acquisitions that have been made in the technology space specifically, they’re not paying off.”
A Lack of Preparation for Today’s Risks Leaves More Companies Feeling Vulnerable
If there’s one thing all of these risks have in common, it’s uncertainty.
Inflation and other macroeconomic factors are destabilizing the business environment. Digital risk has grown at an alarming rate. Loss of confidence in global supply chains is adding to fears of business interruption. Hybrid work arrangements, M&A risks and other organizational factors continue to shift.
“We see uncertainty as the overarching theme,” Fitzgerald said. “There’s uncertainty around the macroeconomic environment that companies will operate in. There’s uncertainty in terms of how those firms will perform in the new day and age of hybrid work.”
Yet despite increased concern, mid-sized businesses have not increased their level of preparedness. The gap between the percentage of executives who felt highly concerned about a risk and those who had a mitigation plan in place was often 20 percentage points or more, Fitzgerald and McGrath said.
There was only one risk where the percentages of the executives who felt highly concerned about the exposure and those who felt prepared to handle it were close. For financial risks, 65% said they had a mitigation plan in place, compared to 67% who were highly concerned.
“I think the thing that surprised me most was that disconnect between preparedness and concern,” McGrath said.
Part of the reason these gaps persist is a lack of internal risk management capacity and expertise. Mid-sized companies often don’t have the internal personnel necessary to adequately prepare for every exposure.
“We rarely see full-on risk management departments at mid-sized organizations,” McGrath said, “and they may not be aware of how the broker or insurer can help them develop risk mitigation plans beyond simply transferring the risk through insurance.”
As an industry, we need to get better at reaching out to mid-sized companies and helping them leverage our loss control and other services to help them. Mid-sized companies have a choice of who they partner with from a broker and carrier perspective, and it’s important to find that right partner to develop tailored solutions to their concerns to help them either avoid, transfer or mitigate their risk.” &