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Navigating Business Risks in 2024

As we enter a new year, companies often experience a mix of cautious optimism and lingering uncertainty. While certain economic indicators may be improving, risks like insolvencies, cyber threats, climate change impacts and political volatility remain top of mind for business leaders. As we head into 2024, understanding the key risk factors and potential opportunities will be critical in charting a successful course for businesses of all sizes.

Cautious Economic Optimism

After a turbulent 2023, the economy is showing some tentative positive signs. Inflation has been on a downward trajectory and real wages are slowly rising. However, the Bank of England still predicts muted 0.5% GDP growth this year. One major drag remains - with roughly two million households needing to re-mortgage in 2024, higher interest rates could constrain consumer spending power. Rates aren’t expected to truly decline until mid-year.

The recent cost-of-living crisis disproportionately impacted lower income groups. But with food, energy, and broader inflation easing, and minimum wage boosts taking effect, their financial squeeze may moderately improve in 2024. Still, significant fiscal tightening is likely needed to tackle the sizable budget deficit. When this deficit reduction hits, through tax hikes or decreased government spending, it could hamper economic growth for the next two years.

Insolvency Risks Still Loom Large

Despite the tentative optimism, business insolvencies may continue rising this year. The many zombie companies just barely staying afloat could finally fold if interest rates remain elevated. Professional services firm PwC predicts over 30,000 UK business collapses in 2024. Already insolvencies climbed 21% year-over-year in November 2023. Industries like hospitality, retail and construction seem especially vulnerable currently.

The risk of a “domino effect” also persists—where the insolvency of one company triggers failures for others in its supply chain. Trade credit exposure is particularly worrying with the prevalence of large, complex business networks. For example, one major construction firm failure last year immediately put 1,250 owed companies at financial risk. Monitoring risks across the entire supply chain is thus essential.

Heightened Cyber Threats

The cyber risk landscape continues rapidly evolving as well. AI is enhancing the scope and sophistication of threats. From realistic spear phishing emails to widespread misinformation campaigns, attackers have more digital weapons in their arsenal. At the same time, mid-market companies often lack resources for advanced safeguards like threat monitoring systems.

While techniques shift, the motivation behind cybercrimes largely persists - financial gain, espionage, and reputational damage. Employee cyber training is thus essential, as human error enables the majority of incidents. Having robust incident response plans and insurance coverage remains crucial too. As AI further democratises attack capabilities, proactive security and resilience will only grow in importance.

Increasing Extreme Weather Threats

The volatility of recent weather patterns shows no signs of abating either according to climate scientists. Intense flooding and storms are likely to increase in frequency and severity in the UK, suggesting commercial property owners in particular carefully evaluate their exposure. Surface water flooding in urban areas may become more commonplace.

Yet weather risks extend far beyond property damage. Supply chain disruptions, contingency planning failures, and health and safety incidents can all stem from extreme weather. And with claims settlements still delayed, more insured losses are turning into business-altering crises. Now is the ideal time for companies to scrutinise their response and mitigation strategies around climate threats.

Staying Atop Asset Value Inflation

Between extreme weather and persistent economic instability, properly valuing assets has become exceedingly tricky—and underinsurance remains worryingly common. In fact, research reveals that 40% of commercial properties could be underinsured currently. The consequences are severe too, with claims payouts reduced proportionally to any inadequate policy limits.

With inflation continuing to run hot in the reconstruction and building sectors, the importance of conducting regular valuation reviews cannot be overstated. Failing to identify and track changes in property values can leave companies profoundly exposed. Any facilities investments, like installing solar panels for example, are particularly impactful and should automatically trigger a reassessment.

Potential M&A Rebound with Volatility

2023 was relatively muted for mergers and acquisitions (M&A) activity across most developed markets. High inflation, rising interest rates, recession fears and geopolitical tensions all contributed to investor uncertainty and delayed transactions. However, an uptick is expected in 2024 amid stabilising conditions. Many companies can only temporarily forestall strategic deals.

Yet political uncertainty prevails, with the UK general election potentially accelerating transactions before a change in government occurs. Deal processes will undoubtedly remain lengthy and due diligence crucial, especially for cross-border acquisitions. Buyers should strongly consider warranty and indemnity insurance too for risk transfer. Even if volatility returns, well-structured deals in growing sectors like technology and renewable energy can pay dividends.

The Year Ahead: Informed Agility Essential

For businesses leaders, 2024 is set to be a year that rewards informed agility in the face of sometimes opposing dynamics. Economic data points cheerier but budgets still constrained. Insolvency risks faded but still urgent for some sectors. Cyber threats maturing rapidly but basic precautions still lacking. Extreme weather accelerating yet resilience plans not keeping pace. And impressive deal-making potential, but only for those evidencing patience and diligence.

By keeping their eyes wide open to both mounting risks and strategic opportunities, and having trusted partners to provide context and advice, companies can feel confident in their ability to successfully navigate all that 2024 has in store.


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