Emerging risks impeding business development: Lloyd’s

Increased concerns at board level regarding terrorism and political violence risk is causing businesses to avoid investing in politically sensitive areas or locating offices in large cities, according to Lloyd’s, the world’s leading specialist insurance market.

A new report, ‘Under Attack: Global business and the threat of political violence’, issued by Lloyd’s reveals that over a third of companies avoid investing in overseas markets for fear of political violence, while 20 percent have foregone promising business opportunities for the same reason. However, there appears to be a significant gap between risk awareness and an actual understanding of the key threats.

Lord Levene, chairman of Lloyd’s, believes businesses need to understand their risks better, saying: “There is a large gap between what businesses perceive as a threat and the reality. Many companies are changing their plans based on perceived threats, which is a problem if their information is incorrect.

“Our research shows that many businesses rely on international media coverage to come to a decision on what risks they face. Media coverage tends to focus on radical religious terrorism and rarely touches on the emergence of new risks, such as threats to supply chains, cyber terrorism, home grown terrorism and the threat of chemical, biological, nuclear and radioactive attack.”

Despite terrorism and political violence risks hampering businesses’ expansion and investment plans, over 37 percent of all companies surveyed – and half of smaller businesses – reported that they had either no continuity plan in place at all or one that does not adequately take account of political violence risks.

Key findings of the report include:

* Business leaders believe political violence risk is real and rising.
* New risks, such as cyber terrorism and home grown terrorism, are emerging that businesses need to concentrate on.
* Businesses need better information to understand where the real risks lie.
* Companies need to prepare better, with nearly half having an inadequate continuity plan.
* Companies that engage more with the local community can help create economic and political stability in a region, which limits the rise of terrorist activity.

With approximately one-fifth of terrorist attacks aimed at businesses, the report leaves little doubt that political violence and terrorism is a boardroom issue that has a wide impact on both strategy and operation.

Lord Levene said: “Boards are spending an increasing amount of time discussing the associated risks, but it is imperative that they use the right information sources to understand the true threats. At Lloyd’s, understanding and dealing with major risks is at the heart of all we do.”

Typically companies see themselves as neither part of the problem nor part of the solution, but business leaders believe they are now at as much at risk of attacks as governments, meaning they also have a role to play in minimising the risks.

“A growing number of policy makers and NGOs believe a company’s presence and engagement in economic development initiatives can create a more stable operating environment and improve community relations,” said Lord Levene.

Read the report (PDF)

•Date: 11th May 2007 • Region: UK •Type: Article •Topic: Operational risk
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