The Biggest Risks for Small Businesses in 2023 

Business owners should know their business inside out to ensure they are able to run efficiently, effectively and safely and that also means knowing what external influences cause risk to the business. Of course, owning a business can always be a risk no matter how big or small it is, that’s why business insurance can often prove to be vital, especially if the worst happens and your business needs to pay out to a third party.

Keeping up to date with everyday risks is a challenge for business owners and stakeholders, especially in a world where the risk landscape changes so regularly. Every day new threats arise which could put a stop to your livelihood in just a matter of seconds – that’s why globally, key insurers work to calculate what the biggest risks faced by businesses are in order to determine what they need to provide cover against in a fair and transparent market.

By ensuring knowledge is relevant and risk data is up to date insurers can offer the very best packages to make sure that their own clients are covered should the unexpected happen and a claim needs to be made against a policy. The Allianz Risk Barometer is one such project that works on a global scale to highlight and inform insurance professionals of the biggest risks faced by businesses of all shapes and sizes with the aim to provide a clear picture on what Allianz customers believe to be the biggest threats in the current climate. 

Small businesses specifically face a unique set of risks which set them apart from larger companies who may have better internal protections or processes. That’s why small businesses need to rely on knowledgeable insurers to make sure they have the protection they need in the absence of huge legal teams and financial backing which might ordinarily be in place to protect larger firms.

The Allianz Risk Barometer 2023, published by the Allianz Global Corporate & Speciality branch is the twelfth annual survey of key business risks which covers businesses across the globe. It analyses data from over 2700 respondents to help build a clear picture of what risks businesses in different countries face day to day. Of course, the geographical deviations within this are vast and therefore the biggest threats reported by businesses do differ from country to country. For example, a small business in a city centre in the United Kingdom may not face the same environmental risk as a business near a flood plain in the United States but could have a much higher risk of disruption because of changes to local legislation and regulation.

Within this post, we will focus on both the overall risks reported in the UK and the risks reported for small businesses globally, to help build a clear picture on exactly what risks small businesses are most worried about this year.

Readers can access the complete Allianz Risk Barometer for 2023 here.

A cohort of UK businesses involved in the Allianz research have provided insight into the risks they are most fearful of ahead of the next year, this has been compared with data from the same research in 2021 to help insurers spot trends or shifts in the risks that businesses face. Indeed, the data provided by these businesses does show a clear shift in the trend, with more people now less fearful about disruption from a pandemic outbreak, and more focused on risks presented by climate change and market developments.

Cyber incidents, business interruption and climate change have all moved up the rankings from second, third and sixth respectively according to the UK segment of this report. Changes in legislation and market developments remain in the same position as 2021 and are therefore unchanged risks.

Other risks noted to be affecting UK businesses include, the skilled workers shortage, pandemic outbreak, fire and explosions, loss of reputation or brand value and natural catastrophes. Most striking is the addition of the skilled workers shortage which has made its first entry to the list, sitting in joint fifth place alongside market developments.

This report covers a range of risks and potential issues which could lead to your business needing to make a claim. The best way to be protected in this instance is to have the correct business insurance in place and the best way to ensure that is by speaking with a qualified advisor or insurance broker.

According to the Allianz Risk Barometer 2023, Cyber incidents are considered to pose the biggest threat to businesses in the UK this year. A Cyber incident could involve cyber-crime such as a ransomware or a denial-of-service attack or could also include technical failure or data breaches which may lead to costs associated with fines or penalties. These failures or losses could be down to a third party, or internal error and therefore it is relatively easy to see why cyber incidents are such a risk – they can happen easily, and often go undetected for months.

In simple terms, business interruption refers to interruption to your normal operations and could occur because of different influences, including supply chain disruption or as mentioned, cyber incidents. There are several types of business interruption cover available across the markets and therefore it’s important for businesses to ensure they are fully aware of what their business interruption policy covers. Speak to your insurer or broker about this if you are ever unsure.

It is clear from this report that climate change is fast becoming a significant concern for businesses in the UK, especially as we are starting to see more consequences of the climate changing such as extreme weather events and prolonged periods of drought. A higher level of awareness and environmental consciousness is no doubt part of the reason for this risk to be so prevalent in this year’s report and it is good to see that open conversation about climate change is encouraging people to think about how it affects them and their business more. 

Changes in legislation could mean your business needs to operate differently in order to comply with the law. Changes to processes can cost money and therefore businesses are worried that sudden changes in the law, both locally and nationwide could lead to increased costs for business owners. The implementation of lockdowns during the first Covid-19 outbreak serve as an excellent reminder of this.

During 2022 we have seen some incredibly significant disruption to financial markets, led by the invasion of Ukraine, increasing inflation, the cost-of-living crisis and political tensions, therefore more business owners are concerned about the consequences of this going forward. When financial markets are volatile, they tend to have an impact on the cost of other products, services and goods which can mean increases in costs across the board for businesses. 

The Allianz Risk Barometer cites several similar risks to those presented in the UK segment to small businesses globally. We should note that to qualify as a ‘small business’ participant for this research, the business needed an annual revenue of less than $250m per year, therefore this data should be considered to be fairly broad, with 912 businesses selected to represent the ‘small business’ community in this report.

A similar trend occurs, with cyber incidents topping the charts. Business interruption and changes in legislation are also considered to pose a threat to small businesses. Globally, there is a concern about how the energy crisis is going to continue to have an impact, as well as macroeconomic challenges which could impact a small businesses ability to trade.

Generally speaking, those issues which are considered to pose the biggest threat to businesses in the UK are remarkably similar to the consensus of risks which are considered to pose a threat to small businesses worldwide, which is why no matter the scale your business trades at, it is crucial to have the right cover in place to protect you from the unexpected. 

Just one of the ways to protect your business from the financial impacts of these risks is to ensure you have the correct insurance in place. Working with an advisor or qualified insurance broker can help you to take the stress out of this. With the right insurance policy in place, business owners get peace of mind that should the worst happen, they will be able to make a claim and help to recover the costs associated with business risks.

There’s more that business owners can do too, from ensuring everyone has the correct training, to increasing security efforts at your premises. Consider how the risks listed above effect your business specifically and think about what you can do to reduce the impact of these. Carrying out a business risk assessment is a terrific way to do this as it will help you to contextualise how much risk a specific threat poses and can give you and your teams guidance on what to do to lessen the impact in a worst-case scenario.

For example; you can increase your protection against a cyber incident by taking out a cyber insurance policy, and by investing in technology to enhance the security of your data. Or, to further protect your business from supply chain disruption, you could add business interruption cover to your insurance and invest some time into sourcing alternative suppliers. Therefore, should your primary supplier face issues which disrupts your supply chain, you will quickly have an alternative supplier available to help reduce the impact of this to your business.

The onus cannot simply be placed on business owners to ensure they keep up to date with the changing trends and risks. Insurers themselves have a responsibility to use data such as that captured by the Allianz Risk Barometer to develop de-risking actions which can help to protect businesses like yours, and to those who currently have active policies in place with them. Being transparent and reporting on this data also helps to de-risk, as it creates more awareness which in turn means more business owners can increase their own protections.

This may eventually lead to less claims, which therefore helps to keep insurance costs down for everyone. It is evident that a good de-risking strategy can help to benefit everyone in the insurance ecosystem.

Within the Allianz report, Georgi Pachov, Head of Portfolio Steering & Pricing at Allianz Global Corporate & Speciality writes:

“Companies are now looking at ways to transform business models, making them more flexible, adaptable and dynamic than previously. Organisations need to be more agile in the current environment and be able to adapt their business models depending on the risks of the macroeconomic, political and competitive landscape.

The time it takes to create and execute business models for products and services will shorten significantly in coming years, which should help build resilience in the long run. Change creates awareness and transparency within businesses, which are key denominators for a good risk philosophy and good risk management.”

By being proactive in carrying out the research and acting upon the findings, insurers can ensure they can provide the absolute best risk management information to their customers. This is essential for ensuring adequate cover can be provided by insurers and that if these risks do cause financial loss to their customers, that loss can be covered by a substantial enough pay out in the case of a claim.

Meanwhile, business owners should be responsible for monitoring their supply chains and their standard operating procedures to ensure that they are doing everything they can to protect themselves and their business from the ever-changing risk landscape, through ensuring they have the correct risk assessments, procedures, and insurance in place.