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Rising risks in recessionary periods

Posted: 22 December 2020

The UK (and wider world) is currently facing times of enormous uncertainty and instability due to a number of socio-economic factors. At the time of writing, Covid-19 (Coronavirus) continues to cause anxiety and disruption. 

Many companies have been hit hard as a result of the pandemic and consequently are struggling to open for business or even remain solvent. The situation is further compounded by the ongoing complexity surrounding Brexit and the potential for negative interest rates. During such challenging times, certain recessionary trends are observable. These present increased threats to businesses and have an impact on the traditional insurable perils that organisations and individuals face. Insurers recognise that such conditions inevitably result in a higher frequency and cost of claims, and may result in claims inflation across all lines of business. 

Incidence of theft tends to increase, including physical items (cash, cars, tools) and online identity theft and fraud. Construction sites can be targeted, with large items of construction plant acting as a lucrative lure for criminals. 

Further, with many commercial properties vacant, there can be increased risk of escape of water (EOW), especially as we move into the winter months. This is partly because water systems are more susceptible to freezing, but this can be exacerbated where leaking water systems are left running for long periods without the property owner’s knowledge, thereby driving up the cost of a claim. 

Vacant premises may also face an increased risk of vandalism, malicious damage and fire or arson; additionally, they may be used as a base for illegal activities or become occupied by squatters.

Paradoxically, at a time when risk management is most needed, some organisations de-prioritise it due to financial pressures. Businesses might look to save costs by removing those roles perceived as ‘non-profit’, such as risk/ health and safety managers, or making cuts to training programmes. This can prove a false economy and lead to greater damage and business disruption further down the line. 

Fairly simple security measures can help reduce the risk of break-ins and theft, such as CCTV, intruder alarms and the use of locks (including padlocks) to gates, shutters and external doors. 

To reduce the risk of EOW damage, water leak sensors and gadgets can assist with this but there are other methods to reduce the likelihood of EOW, which are discussed in the next article.

During challenging times, organisations may face increasing risks combined with the pressure to make short-term savings; however reducing risk management can prove costly and disruptive. Visit Allianz Risk Management for the latest guidance on a variety of risk topics.
CCTV camera
Stuart Daws
Head of Loss Control Engineering
Allianz Insurance PLC

This article is part of the BIBA Broker Guide to risk evolution (December 2020).