NEW YORK – December 5, 2011 – Despite record unemployment levels across much of the US, American business leaders say one of the biggest risks they now face is a talent and skills shortage. That’s according to the 2011 Lloyd’s Risk Index, carried out by the Economist Intelligence Unit, which polled 500 C-Suite and board level executives in North America, Europe, Asia and elsewhere to assess corporate risk priorities and attitudes around the world.
The prioritisation of ‘talent and skills shortages’ shot up to the number two risk facing businesses from 22nd place in the 2009 index, as businesses face demographic, competition and productivity pressures. 45% of respondents in North America rated talent as a high or very high priority over the next year, compared to 42% of those in Europe.
“We have gone from a credit crunch to a talent crunch, despite the unemployment picture,” said Richard Ward, Chief Executive of Lloyd’s. “CEOs feel they are lacking people with specific skills, but they are also concerned about having leaders and managers who can help them navigate the difficult global business environment. Extraordinary conditions require exceptional leaders.”
“These findings show that talent is now firmly part of the risk lexicon - high levels of unemployment have boosted the quantity of candidates, but employers are still wrestling with the quality. Our own Global Talent Index echoed these concerns and highlighted two factors underscoring this risk: population demographics and skills gaps,” said Kevin Kelly, CEO of Heidrick & Struggles the leadership advisory firm providing executive search and leadership consulting services worldwide.
The number one risk in the US and Europe was loss of customers - a stark reality for many businesses during the prolonged economic uncertainty.
However, of all the risks listed, talent was one of just two - out of 50 included in the index - where businesses feel insufficiently prepared. ‘Boosting talent retention’ was named in the survey as one of the most effective risk management actions taken by management over the last three years, highlighting just how keen businesses are to retain the staff they have.
Preparing for Risk
The risk perceptions of business leaders are in sharp contrast to those raised in the inaugural survey in 2009, in which the top three global risks were related to the liquidity crisis; cost and availability of credit, currency fluctuations and insolvency. “In all regions of the world, across all sectors, business leaders now perceive the world as an inherently riskier place,” said Hank Watkins, President of Lloyd’s America.
Despite the number and severity of risks, however, business leaders feel they are ready, saying they are more than adequately prepared for 48 out of the 50 risks in the index. That “preparedness gap” is markedly different from 2009, when leaders said they were not adequately prepared for eight of the 40 listed risks.
When respondents were asked to identify the most effective risk management action their organization had taken over the last three years, they cited the introduction of formal risk management strategies and systems. Risk management is now one of the most important roles in the business community.
Other Survey Highlights
Loss of customers: The loss of customers who are willing or able to buy goods and services is the top-rated risk, thought to have climbed the list as a result of the austerity measures in the West and the lingering global recession, among other factors. Business leaders are cognizant that attracting and retaining customers is their best hedge against economic turmoil.
Reputational risk: Reputational risk rose to No. 3, up from No. 9 in 2009, propelled in part by a series of high-profile corporate disasters, such as the BP oil spill, and greater awareness that damage to a company’s reputation and brand can have severe economic impacts.
A 2010 study of the world’s 1,000 largest companies found that 80% lose more than a fifth of their value every 5-year period because of a major reputational event .
Risk awareness rises in the East: The greatest increase of risk perception was in the East. Since 2009, business leaders in the Asia-Pacific region significantly raised their assessment of the seriousness in all five categories of risk surveyed. Business risks rose to 7.7 from a priority score of 6.5 in 2009; economic risks rose to 7.3 from 6.6; political risk from 5.0 to 6.1; and natural hazards from 4.3 to 5.4. The sharpest rise of all has been the perception of environmental risks, to 6.0 from 4.7 in 2009.
Facing up to cyber threat: While many types of risk may be industry or regionally specific, cyber risk is universal. Yet its ranking in the overall Index at only 12 (malicious attacks) and 19 (non-malicious) appear relatively low given the frequency and potential impact of the risk. In North America, however, the risk of malicious attacks did make it into the top five risks.
The business costs of cyber breaches, whether malicious or otherwise, are mounting. Research published at the start of 2011 estimated global cyber crime is now costing businesses $114 billion a year, $96 billion of it in the United States alone, according to the Symantec Internet Security Threat Report Volume 16, Sept 2011.
Lloyd’s has developed a Risk Index portal at www.lloyds.com/riskindex which includes the full report, summary findings, detailed analysis of the findings by region and sector, and pre-prepared infographics highlighting:
- Top 50 risks and their priority and preparedness scores
- List of 2010 and 2011 natural hazards mapped by region
- Top 5 regional and global risks
- Ranking and priority of each risk category per region and globally
About the Survey
The Lloyd’s Risk Index 2011 was carried out by the Economist Intelligence Unit in August 2011. The survey measured attitudes about risk across five categories:
- Business and strategic risk,
- Economic, regulatory and market risk,
- Political, crime and security risk,
- Environmental and health risk, and
- Natural hazard risk.
Survey respondents were distributed across Europe (35%), North America (27%) and Asia-Pacific (27%), with the rest of the world comprising about 10%. Financial services provided the largest number of respondents at 19%, followed by professional services at 13%, manufacturing at 10% and technology at 10%. The remaining 48% of respondents represent a wide range of other industries.
Around one-half of respondents represent corporations with annual revenues of over US$500m.
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Lloyd's is the world's leading specialist insurance market. It ranks first among surplus lines insurers in the US and is a leading reinsurer. In 2011, 87 syndicates are underwriting insurance at Lloyd's, covering all classes of business in more than 200 countries and territories worldwide. Lloyd's is regulated by the Financial Services Authority and is rated A+ by Fitch and S&P and A by A.M. Best.