Human capital issues have become a key business risk fueled by the competition for talent and workforce shortages among other issues, a recent Aon report has revealed.
Failure to attract and retain talent reached the highest ever ranking position in Aon’s 2023 Global Risk Management Survey, as it took fourth position globally, after not breaking the top 10 in 2021.
This result, according to experts, demonstrates a shift in how risk managers are viewing human capital today. Still, only 11 percent of survey respondents indicated they have quantified their people risks, illustrating a significant gap between risk awareness and risk preparedness.
Lambros Lambrou, CEO of Human Capital at Aon, said: “We are at a pivotal moment in time, when business leaders are recognizing the true cost of human capital challenges and the reality that people risk intensifies all other top business risks.
“Shortfalls in talent, workforce or critical specialised skills can hamper innovation and competitiveness and increase exposure to cyberattacks, regulatory breaches, supply chain issues, business interruption and reputational damage.”
The report gathered input from almost 3,000 risk managers, C-suite leaders and other executives from 61 countries and territories to identify their most-pressing business challenges.
It revealed that, unlike human capital, climate (#17) and Artificial intelligence (AI) (#49) did not rank in the Top 10 despite warnings and headlines. According to analysts, this suggests a lack of awareness about the potential impact of these issues on the corporate risk profile.
More immediate climate driven risks include property damage, impact of severe weather, natural catastrophes, and the consequences for business of climate-related regulatory changes and compliance obligations.
“What is more confounding are the risks that are noticeably unaccounted for in leaders’ assessments of the challenges they must address, notably climate risk,” said Andy Marcell, CEO of Risk Capital and CEO of Reinsurance Solutions at Aon.
Adding: “Climate is not an emerging risk, but an urgent one, with increasingly monumental implications for businesses of all sizes. What leaders need now are insights from advanced analytics and modelling alongside innovative parametric solutions that will help them make better decisions today and protect them in the future.”
Moreover, AI represents one of the most pressing concerns amid technological advancement, Aon noted, “as it will transform the enterprise risk landscape for all industries, introducing new risks for many companies and changing the severity and velocity of change of many existing risks.”
“For instance, far-reaching AI programs could increase cybersecurity exposure, engender legal issues and amplify human capital risks such as scarcity of in-demand skills sets. Risk managers who understand the liabilities and insurance implications of AI across their digital value chain add value to their enterprise AI strategy,” the broker stated.
As conflicts, geopolitical change, and macroeconomic conditions continue to have broad-reaching impacts, with business leaders ranking the risk of supply chain and distribution failure in the sixth position, its highest level in 14 years.
Cyber attacks and data breaches remain the top risk in this year’s survey, both globally and in North America, and they have also climbed to the top spot in Europe and Asia Pacific.
It was also revealed that cyber has the highest level of risk readiness, and consistent with that, it has one of the lowest reported losses of income and one of the highest percentages of risk mitigation actions across all top ten risks.
Business interruption remains the number two risk since Aon’s 2021 survey, reflecting the reality that business interruption events are increasing and can affect multiple industries and companies simultaneously, the broker noted.
Overall, the top ten global risks this year according to the survey are:
- Cyber Attacks/Data Breach
- Business Interruption
- Economic Slowdown/Slow Recovery
- Failure to Attract or Retain Top Talent
- Regulatory/Legislative Changes
- Supply Chain or Distribution Failure
- Commodity Price Risk/Scarcity of Materials
- Damage to Reputation/Brand
- Failure to Innovate/Meet Customer Needs
- Increasing Competition
Only two of the top five current risks are insurable, Aon highlighted, and half of the overall top ten is presently uninsurable.
