The top ten risks for UK businesses in 2022

Posted: 25 January 2022

🡡 from 2021

🡡 from 2021

🡡 from 2021
Last year’s top identified risk – pandemic outbreak – has dropped into seventh place for 2022, possibly suggesting that many companies have adapted to the ongoing situation and feel more prepared for similar future events. However, the risks occupying the top two slots, cyber incidents and business interruption continue to be shaped by Covid-19 even two years on. Climate change has moved up into third place, no doubt influenced in part by the recent COP26 conference and wider focus on sustainability and Environmental Social Governance (ESG).
1. Cyber incidents (#2 in 2021)
e.g. cyber crime, IT failure/outage, data breaches, fines and penalties

The Covid-19 pandemic saw a large-scale move to remote working which many businesses are still adopting 24 months on. Moving employees and equipment offsite introduces new access points for vulnerability, and the geographical spread of staff translates to thousands of routers and networks, increasing exposure across a company’s IT ecosystem. Cyber criminals have exploited these vulnerabilities, plus the increased reliance on video conferencing apps, for commercial gain through activities such as social engineering methods and phishing emails. Ransomware is currently one of the fastest growing global cyber security threats, rising by 93% in the first half of 2021
. This is partly attributed to emergence of ransomware-as-a-service (Raas) where ransomware is sold for a relatively cheap price. As a result, 63% of UK executives report they plan to increase their cyber budgets over the next year.2

Read more from AGCS about ransomware and other cyber risk trends.

2. Business interruption (#3 in 2021)
including supply chain disruption 
Over the last 24 months, businesses have had to adapt to both Brexit and the Covid-19 pandemic in quick succession. Repercussions have included higher import and export costs, cash-flow challenges, staff shortages and supply chain disruption. The pandemic saw many businesses forced to close their doors either temporarily or permanently, in particular those in the retail and hospitality industries. The FCA test case appeal in January 2021 brought clarity on the subject of non-property BI claims for both customers and insurers.

Read our article “What is business resilience and why is it more important than ever?” and listen to our Insurance Tomorrow ‘Supply Chains’ podcast.

3. Climate change (#6 in 2021)
e.g. physical, operational, financial and reputational risks as a result of global warming
Climate change is the biggest climber from 2021 showing this to be prominent in the minds of many business leaders. The COP26 conference in Q4 2021 brought ‘loss and damage’ - the phrase used to describe the destruction being wrought by the climate crisis - under the spotlight and this will likely remain high on the agenda at the COP27 summit. Aside from the obvious environmental impact, climate change can stress local economies, threaten company business models and pose widespread disruption to organisations. A government report published in January 2022 has predicted that the cost of climate change to the UK could be at least 1% of GDP by 2045.3 
4. Changes in legislation and regulation (#4 in 2021)

Brexit-related legislation and regulation for businesses continues to evolve, from importing and exporting, to transporting goods to the EU, exchanging data, and recruitment of people from outside the UK.

ESG (Environmental Social Governance) also remains high on the regulatory agenda, with the publication of the Green Claims Code in Q3 2021 designed to prevent ‘greenwashing’ - businesses misleading customers about environmental claims.

Organisations have naturally also needed to keep up with changing Covid-19-related regulation and measures, and understand their responsibilities with regard to keeping employees safe.

Read the latest Brexit guidance for businesses.

5. Market developments (#5 in 2021)
e.g. volatility, intensified competition/new entrants, M&A, market stagnation, market fluctuation

For a third year, market developments remains fairly static in its rating. The UK market continues to experience volatility with inflation hitting its highest level for nearly 30 yearsand the cost of living rising, particularly food and energy prices.

Uncertainty surrounding the severity of the Omicron variant continues to impact negatively on gross domestic product (GDP) and also threatens employment in the retail and hospitality sectors. On 20 January, the government announced the lifting of a number of Covid restrictions, including those related to remote working. The effect on the economy is yet to be seen.

6. Shortage of skilled workforce (new)
A new entry for 2022 is the risk of skills shortages in which both Brexit and the pandemic have played a role. In post-Brexit Britain, sectors which relied on the freedom of movement of EU workers have been impacted most, such as agriculture, social care and hospitality. In Q3 2021, HGV driver shortages hit the headlines, leading to widespread panic buying of fuel. Worker shortages, particularly related to younger workers5.  have also been caused by the pandemic, with large numbers of staff unwell or having to self-isolate; this in turn has led to supply chain issues and business interruption for many companies.
7. Pandemic outbreak (#1 in 2021)
e.g. health and workforce issues, restrictions on movement

Dropping the most places in the list is the risk of pandemic outbreak. Nearly two years on, many organisations have adapted well to the pandemic, with measures including remote and flexible working or adjusting business models to comply with evolving government regulations. In many instances this has led to an acceleration in digitalisation and the adoption of new technologies. However the recent Omicron variant shows that the pandemic continues have an impact, and will likely do so for the near future.

Click here to read our BIBA Broker’s Guide to managing the after effects of Covid-19.

8. Fire, explosion (#9 in 2021)

Rising one place from 2021, fire and explosion persists as a key area of concern. Since the tragic case of Grenfell in 2017, UK fire safety legislation has been fiercely debated. The Fire Safety Act 2021 (Act) was made law in April 2021, applicable to all multi-occupied residential and commercial buildings, and placing further accountability on businesses’ ‘Responsible Persons’. Aside from the danger posed to life, fire and explosion can also result in significant business interruption for organisations.

Visit Allianz Risk Management for a wealth of information and guidance on fire hazards, plus business impact assessments.

9. Loss of reputation or brand value (#10 in 2021)
Remaining fairly static on our list, damage to reputation and brand value can stem from a number of sources. Businesses have come under particular scrutiny for how they’ve treated employees throughout the pandemic, with a focus on mental health and wellbeing. Research commissioned by Acas6 found that over a third of British employers have seen improvements to mental health support since the start of the pandemic. Firms are also evaluated on treating customers fairly, including vulnerable customers; research shows that 27.7m UK customers 7
present characteristics of vulnerability. In February, the Financial Conduct Authority (FCA) published its guidance and expectations of firms on the treatment of vulnerable customers. There’s also a strong focus on companies’ sustainability and ESG credentials, linked to concerns around climate change.
10. Natural catastrophes (#7 in 2021)
e.g. storm, flood, earthquake, wildlife, weather events
Last year was the sixth warmest year on record (jointly with 2018), and the past eight years the warmest years since modern recordkeeping began in 1880.8 Natural catastrophes are inextricably linked and the most common in Britain come in the form of floods. Aside from the human risk, natural catastrophes pose a variety of issues to organisations, from property damage, supply change disruption and interruption to business.