Economic uncertainty remains the Number 1 risk facing Canadian businesses, according to Aviva Canada’s second annual Risk Insights Report.
Based on a survey of nearly 1,500 Canadian business leaders, the report found one in three businesses stated they were “very concerned” and more than half (56%) said they were somewhat concerned about the economic outlook.
“Across all sectors and business sizes, Canadian businesses are staring down inflationary pressures, rising costs, supply chain issues, geopolitical risks and fears of an economic recession,” Aviva Canada CEO Jason Storah wrote in the report, released Wednesday.
“That concern is influencing perceptions of the other risks in our report’s Top Five: business interruption, public health events, skilled worker shortages, and cyber threats — all risks that carried over from our 2022 report but are now further shadowed by economic uncertainty.”
Research for the report was conducted in October and November 2022, against the backdrop of the Bank of Canada’s rapid increase of interest rates to tackle inflation. The economy has been described as heading toward a ‘mild recession,’ economic downturn or, as BMO Financial Group’s chief economist said during a recent industry event, a ‘shallow downturn.’
Of the businesses Aviva spoke with, 56% said inflation has increased the cost of products and services, particularly in the business and professional services, construction, manufacturing and transportation sectors, while 43% point to an increase in workforce salaries. Still, despite inflationary pressures, one in four (24%) of business owners had no plans to make changes to their operations.
But businesses are pivoting to curb the effects of inflation. Of those making changes, medium-sized businesses (annual revenues between $5 million and $10 million) are the most likely to have looked internally — finding new suppliers and sourcing lower-cost materials to curb inflationary pressures.
Although some larger businesses have adopted similar strategies, a higher percentage is placing their immediate efforts on revisiting internal processes and addressing current staffing shortages. Both middle market (annual revenues between $10 million and $250 million) and large (more than $250 million) businesses are looking to pass some of these added costs onto customers.
“The rapidly evolving economic risk environment highlights the importance of having adequate coverage,” the report said, pointing to insurance to value coverage that is linked to a pre-determined value. “With inflation driving up replacement costs, businesses need to ensure the declared amount in the policy reflects the reality of what might be underinsured with inadequate funds to cover any losses.
“Rising costs and economic uncertainty make it a challenging time for businesses to revisit and reinvest in their insurance coverage. But it’s also critical that brokers and the insurance industry work with clients to make sure they are adequately insured at the right level and not left vulnerable.”
The Number 2 risk is business interruption, which includes cybersecurity and environmental risks such as extreme weather and natural catastrophes. According to the report, 8% of organizations don’t have business continuity plans (up from 5% in last year’s report), and only 29% are contacting their insurer or broker for help.
Public health events (Number 1 concern in 2021) fell to Number 3 in 2022. But despite a return to some normalcy, 77% of Canadian companies still expressed concerns about the impact of public health events, and 24% said they’re still very concerned.
Skills shortages take the Number 4 spot. Larger businesses report being hit hardest and are most likely to indicate they are finding it difficult to fill vacancies. Aviva Canada said business owners will also need to address in their recruitment efforts the growing number of people looking for higher wages. “They’ll also need to re-examine their corporate culture and policies surrounding flexible working environments to retain the talent they already have.”
The report found 35% of businesses said they have already increased their labour force and 38% plan to in 2023. While 36% said they are adequately staffed with an engaged workforce, 23% report being understaffed.
Rounding out the Top 5 risks is cyber threats. And while 58% of Canadian businesses report having some form of cyber insurance (with 49% saying they will increase that coverage over the next year), only 33% are turning to their insurance provider for cyber advice and support. Only 9% said they feel confident they are adequately covered.
“Our research shows that companies are looking for added advice and support when it comes to evaluating their cybersecurity risks and we believe brokers and the insurance community have an opportunity to raise awareness around the role cyber insurance plays in a well-planned defence.”
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