Posted on: 11 February 2022

Risk management should be the heart and soul of a business’s foundation. A good risk management strategy can help businesses in obtaining lower prices for insurance premiums, ensures they are sufficiently covered for the risks they face, reduces the likelihood of paying an excess on cover and most importantly maintains a safe working environment.  

Given the current economic uncertainties, we at Premierline understand that SMEs (small and medium enterprises) face challenges throughout the life cycle of their business. So, we have reviewed Aviva’s 2021 Risk Insight report and have outlined the key risks for business.  

The Aviva report is based on research that surveyed 1,251 business leaders from across a wide variety of industries and regions, and it aims to outline the key risks faced by businesses today in the UK. Aviva are just one of many insurance partners of Premierline as we offer a wide range of products suitable for SMEs. 

Summary infographic

1. Economic Concerns 

According to Aviva’s survey, 37% of UK businesses reported economic concerns as their biggest risk, because of events such as COVID-19 lockdowns, Brexit, and continued supply chain disruptions. Moreover, this does not come as a shock because the events mentioned above have caused increased VAT (Value Added Tax) rates and inflation in the economy which increases the price of goods and services. This in turn has the potential to deter customers from buying these goods and services, thus causing sales to reduce.  

Furthermore, the Covid lockdowns caused businesses to use their existing capital and 44% applied for financial support, to stay afloat while being shut. The report also outlines that businesses such as charities; construction and real estate; retail and wholesale; professional and business services; arts entertainment and leisure outlined economic concerns, particularly insolvency, as their top risk.  

However, businesses can look to survive this unstable period by investing in better financial management, continuously reviewing their supply chain for bottlenecks, and improving technological processes to reduce their costs.  

2. Shortage of skilled workforce 

Every business needs a skilled workforce, but recently there has been a shortage of workers in all industry sectors due to Brexit and Covid-19. 28% of the businesses surveyed cited this as one of their biggest risks in the Aviva report.  

The business sectors which have been affected the most are technology; construction and real estate; professional and business services. Furthermore, the shortage of heavy goods vehicle (HGV) drivers is particularly high which creates new risks of supply chain disruptions around the UK and Europe.

With the shortage of skilled workers, many businesses have increased wages to retain their existing staff and attract the employees they need. However, this pay increase is unlikely to have been budgeted for and may also negatively impact the business’s cash flow.  

The Aviva survey also suggests that businesses are concerned about dealing with high post-pandemic customer demand which could become overwhelming given the staff shortages. Therefore, businesses could invest in developing in-house talent by collaborating with education institutions, incentives, and strategies to foster a learning environment. 

Businesses could consider technical solutions to remove the mundane repetitive tasks, so that employees can focus on the skilled segments of their roles. An employee is one of the most important assets a business has, so, a continued focus on their wellbeing and the value they bring may help with retaining your existing skilled workforce.  

3. Loss of reputation and brand value 

It takes years to build a brand’s reputation and goodwill, but a few incidents are enough to decrease the trust placed by customers in the business. It goes without saying that a business would never jeopardise its brand value intentionally, however poor risk management can be a catalyst that can do irreversible damage to a business’s reputation.  

Interconnected risks within a company can affect a business’s operations and its ability to satisfy its customer’s needs. Therefore, companies should always review their operations and identify new risks early, to eliminate potential reputational damage.  

During the pandemic, 44% of businesses made changes to the way they operate, with many selling online for the first time and introducing virtual sales. Businesses that adapted quickly and continued to serve their customers retained more of their customer base during this challenging period. 

Additionally, companies should aim to employ Environmental, Social and Governance (ESG) goals in their business plans because customers are increasingly seeking businesses with sustainable practices. 

4. Impacts of Brexit 

Brexit was one of the most important political events to take place in UK history, creating an uncertain environment with potential new risks within the supply chains for UK businesses trading with EU (European Union) countries. Manufacturers and the retail industry have been affected the most due to raw material and staff shortages. 

A ‘Ready to Launch’ study by the Federation of Small Businesses (FSB), revealed that many SMEs have felt less confident in taking advantage of the new trade deals signed by the UK since it left the EU, due to a lack of support and guidance available to them. This has impacted the sales and growth of those businesses that previously relied on exporting their products to EU countries.  

Furthermore, the Aviva report states that 47% of UK businesses believe Brexit will continue to harm their business operations in the short term. So, many businesses have taken the opportunity by moving to UK-based suppliers to maintain the quality of their products.

5. Public health events 

Covid-19 has completely changed how businesses manage their services and operations. Although the government has removed many of its Covid-19 restrictions, the threat of a similar public health event in future and its impact on business operations, remains a worry for many business owners. 

As a result of the pandemic, many employers have now completely shifted to a hybrid working model with employees splitting their working week between working from home and the office. This method has proven to increase productivity in some industries but has also given rise to an increase in issues such as cybercrime as employee systems could be more vulnerable at home with less cyber security present. 

It is certainly prudent for businesses to have a recovery plan in place for future public health events so you should discuss this with your broker or insurance provider, so that they can advise how best to protect your business. 

6. Business interruption 

The operations of a business could be interrupted for several reasons but over the past two years, the main reason was undoubtedly due to Covid-19. Businesses struggled to maintain productivity and earn profits, as consecutive lockdowns influenced their economic and human capital’s performance. Properties were left vacant for an extended period as workers were furloughed or worked from home. This resulted in offices and warehouses being susceptible to flooding or maintenance hazards.  

Retailers had to deal with new business interruptions due to online shopping being chosen as the preferred method of shopping. This resulted in an increasing number of deliveries and returns which proved problematic due to shortages in warehouse staff and delivery drivers.  

However, the risks of business interruption can be mitigated by companies investing in a good business continuity plan. They should complete a business impact analysis on the issues that could affect their ability to trade whilst regularly updating and testing business continuity plans.

Keeping in touch with your insurance broker or insurer is key. They can review your existing insurance, recommend additional covers, and risk management solutions to respond to unexpected events whilst continuing to meet your needs.

7. Cyber security and cyber incidents 

During the pandemic, a considerable number of businesses made digital transformations that increased productivity results. However, cyber-attacks have also increased in numbers due to new digital business models. 

Businesses invested in technologies that make remote working possible but this, in turn, may have left them vulnerable to cyber-attacks. Aviva reported that 30% of UK businesses had suffered operational disruption or loss of data in their business within the last 12 months due to cyber-crime.  

To mitigate this risk, businesses may need to invest further to strengthen their systems and increase their cyber security. Furthermore, they could consider purchasing a cyber insurance policy that helps in the event of a cyber incident. 

8. Market developments 

The business market is growing every day with new technological developments being implemented to enhance a business’s capabilities to attend to customer’s needs. The Aviva report states that 9% of the UK businesses surveyed started offering new virtual services and another 9% stated that they are offering services different from their traditional offerings.  

This has favoured many start-ups, who have capitalised on opportunities to grow their businesses by developing innovative technological  products and services to meet changing customer needs.  

However, compared to bigger businesses, it is harder for smaller businesses with less capital to adopt a more advanced digital business model. This puts them at risk of not being able to evolve to meet the changing market needs. Further, the report states that 54% of SMEs had to gain external funding to gain traction post-pandemic, while this leaves smaller businesses vulnerable to risks of debt.  

A significant solution that SMEs could utilise to reduce costs and optimise their capabilities might be to outsource their services in collaboration with external partners. 

9. Health and wellbeing 

Most employees were not able to see their work colleagues or family members for a significant period due to lockdowns and COVID-19 government guidelines. This has given rise to an increase in issues regarding mental health and the wellbeing of employees. Research suggests that employees working from home have felt isolated, stressed, and exhausted, being unable to separate their work from their home life. Of those surveyed, 22% said they suffered from poor posture issues whilst working from home. 

However, remote, and flexible working are practices that will continue post-pandemic. Businesses have a responsibility to protect their employees and ensure their working conditions are suitable and safe.

The Aviva report recommends that businesses should undertake risk assessments for employees that work from home and continue to keep in regular communication with members of staff. This would ensure employee welfare is protected and they can continue to be productive in a hybrid work model. 

Additionally, it may be good practice to provide mental health awareness training to all employees and managers so that they can look out for the signs and offer appropriate support to their colleagues when needed.  

10. New and changing technology 

Each year we find that technology plays a key role in the growth of business sectors such as retail, professional business services and construction. It helps businesses in increasing efficiency while maintaining a competitive advantage. However, it can leave businesses more open to risks of system failures and cybercrime, as they embrace modern technologies. 

Even though the Aviva survey mentions that 15% of small businesses reported new technology as one of their biggest risks, it is increasingly necessary for them to survive. Businesses that continue to invest in technology are likely to reap the rewards of improved productivity, more agility and higher customer satisfaction.  

In summarising the top 10 risks, the importance of risk management is key to business survival and future growth. By taking the necessary steps to identify and plan for potential disruptions, businesses can be prepared and respond effectively to unexpected incidents.  

As an insurance broker, Premierline can help you manage your risks. We are a specialist insurance broker with experience in arranging insurance for a range of businesses. We work with some of the UK’s most well-known insurance companies and train our staff to be insurance experts, so we can help find the perfect insurance cover for your business. Get in touch today for a quote.

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