Businesses face huge risks due to operational changes

According to a study conducted by Mactavish, a research company specialising in risk and business insurance, businesses have acquired huge risks that they barely understand as a result of operational changes.

The study looked at 250 companies over a range of business sectors that included manufacturing, construction, retail and financial services.

Mactavish believes that the increased risks are likely to lead to losses for both companies and insurers over the following few years. They claim that the risks range from weaker supply chains to rushed product development, lower supervision levels, product diversification, increased contractual liabilities and low-cost outsourcing to far-eastern countries such as China.

According to the survey many of these risks had not been fully disclosed to the insurer, which has increased the danger of insurance contracts being invalid. Up to 65% of companies stated that they did not review how their risk was explained to insurers as part of the contract on which their businesses rely.

The Chief Executive of Mactavish, Bruce Hepburn stated:

"British firms contain new risks that have not been properly understood or reflected. As a result of this, combined with existing pressures on insurers, the insurance sector and the companies it serves could be facing a perfect storm that would form another phase of the financial crisis."

Mr Hepburn went on to say that businesses needed to "wake up" and take a full review of their operational risks. He added that there is still an opportunity to make a full disclosure and take advantage of low cost cover before the "soft market" in business insurance ended.

08/01/10