A unique research programme by QBE Business Insurance empirically proves the world is getting more unpredictable. The QBE Unpredictability Index finds that the world has become more unpredictable over the last 30 years with economic and business factors the principal drivers of uncertainty over the last decade.
These are some of the key findings of a report on unpredictability and its impact on business, which combines trend research over the last 30 years and interviews with more than 1,300 senior business executives in the UK, France, Germany, Italy, Spain and the Nordic countries.
Across five pillars that form the Index - Economic, Political, Societal, Environmental and Business, 2010 was singled out as the most unpredictable year of the last three decades. Almost all the least predictable years in the index are since the millennium and most of these have been since the 2007/08 global financial crash.
The cost of volatility
The cost to business of unlikely events happening is pronounced. Four in five businesses surveyed (78%) have been significantly impacted in the last 10 years by one or more pillars of unpredictability, with economic events having the most severe impact.
Almost a third (29%) of British executives said their company had lost revenue as a result of unforeseen events while 22% experienced a decrease in demand for their products or services. A further one in four (21%) have suffered either disruption to their supply chains or have had to accommodate unplanned for costs.
Are British businesses burying their heads in the sand?
British leaders are in the main (57%) positive about the future success of their businesses, putting them on par with their French counterparts. Both nations however lag someway behind the levels of optimism expressed by their European neighbours with 73% of German, Spanish and Nordic business leaders feeling positive about the future.
Remarkably, the measured levels of UK positivity could be seen to be on the high side, when considered with how UK businesses fail to plan for unforeseen events. Companies in the UK are the least equipped of those surveyed to handle surprises. Over one in four said they were not prepared to deal with unforeseen circumstances. This is not terribly unsurprising when you consider over two thirds (69%) have no risk management plans in place, less than a fifth (16%) carry out stress tests and 13% admit to making no preparations at all for unforeseen events.
Brexit – a short term preoccupation?
Given the current impasse on the future relationship with the EU, political uncertainty is having a disproportionate impact on UK businesses as they struggle to cope with the unpredictable future. Almost half (45%) of UK executives say political uncertainty is the biggest risk facing their business in the future compared with 33% of European business leaders. While one third of European business leaders believe the next 12 months will be unpredictable that figure rises to 58% among UK senior decisions makers. Their uncertainty about the next three years rises to 66% compared with 50% among their European counterparts.
42% of UK business leaders consider politics to be the most unpredictable area in the next 12 months, reducing to 29% when executives were asked to look ahead three years. When asked to extend their outlook to 10 years, senior leaders considered economic uncertainties more concerning (23%) than political instability (21%), bringing the UK results more in line with those of the other countries surveyed.
While the research highlights the degree of Brexit-related disruption felt by British businesses, executives’ concerns about political instability are heightened in the next 12 months, reducing steadily thereafter. Business and economic concerns rise as political worries abate with 65% of UK business leaders saying a big change in currency or market volatility would be a significant risk to their company. 71% of UK business leaders admit that a big change in economic factors like GDP would pose a significant future risk. A worrying admission as while predictions about the impact of various Brexit scenarios on GDP vary wildly, few are positive.
Cécile Fresneau, Executive Director, UK Insurance said “It’s a well-known saying that we live in unpredictable times. Our research now confirms it. While I’m glad to see that overall businesses are largely upbeat, I am concerned that many are leaving themselves unnecessarily exposed.
Unpredictable events are not by their nature negative, it is often how businesses are equipped to respond that ultimately defines them as good or bad. Risk is a normal part of life and with the right preparation there are ample rewards to be had.”
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