By: Urs Uhlmann, Manager Director, Global Corporate & Specialty, Aviva Canada
Risk is an inherent part of business and creating the right plan to help mitigate risk is now more important than ever. Challenges plaguing society around global supply chains, labour shortages, and inflationary pressures are amplified by geo-political affairs. Risk managers and businesses need to consider how to be agile and position themselves in these unpredictable times.
In the first part of 2022, Aviva Canada released the Risk Insights Report that takes an in-depth look at the state of risk through the eyes of Canadian business owners. The findings show shortage of skilled workers and supply chain issues have been top of mind for businesses of all sizes. The ramifications are profound: production has slowed across industries, businesses are challenged to find materials or parts, and costs have drastically increased as we face inflationary pressures at a global scale. The recent Bank of Canada interest rate hike to 1% will likely take some time to counter inflationary pressures.
Aligning with findings from the Risk Insights Report, a recent study from the Bank of Canada states labour markets appears to be tighter than they were a year ago1. The post pandemic shift to an ‘employee market’ has intensified pressure on businesses that are already struggling with a shortage of workers, to compete not only for new talent, but retain current employees. For certain industries, like construction, that have struggled with skilled labour shortage long before the pandemic, this has been exacerbated as vacancies in construction grew by 46.7% over the past two years. Furthermore, Aviva’s data finds more than a third of construction businesses (36%) view shortage of skilled workers as a key risk for them.
There are various factors affecting the shortage of workers for businesses. Results from the first-quarter 2022 Business Outlook Survey from Bank of Canada2 show that new technological advantages, aging population, shifting occupational preferences and a strong demand for labour are contributing factors. People are the competitive advantage and for businesses to overcome the challenge of labour shortages they will require a balance of investing in their team’s health and wellbeing, incentivizing talent and upskilling internally.
The current challenges and environment serve as a good reminder for businesses to build a contingency plan to help your business address unforeseen issues. Taking steps to incorporate business contingency plans into contracts has become a necessary practice for businesses to protect themselves. It is essential to have an agile process to adjust supply chains and ensure contractual flexibility for all events a company cannot influence - to ensure that operations can proceed uninterrupted as changes to the risk landscape continue to evolve.
We can’t predict risk with certainty, or remove it all together, it’s a fact of business life. Here are a few thoughts and tips, for those parts of the risk that you cannot mitigate, but that you can transfer to an insurer:
- Talk to your insurer about your enhanced contingency plans.
- With the runaway inflation, make sure you adjust values on your assets and on your business interruption to current day values - be prepared to explain how and when you did that. Brokers and insurers have capability to help you with value adjustments.
- Ensure your company is adequately insured to value, and it’s up to date. Consider contingent business interruption sub-limits.
- Ask your insurer how they are equipped to help you rebuild or replace buildings or equipment, vehicles etc., in the case of a loss. While they all should have the financial capacity to do so, not everyone has the same capabilities to influence suppliers or contractors.
For the foreseeable future we live in uncertain times that make the art of managing risk challenging, and with it, contingency planning more relevant than ever for most businesses. While it creates unique challenges, it also creates opportunities for the risk community to prove its value!