Business Insurance

5 Trends Shaping Risk Management in 2024

Consider how these five risk management trends could impact your business this year.

January 11, 2024

Staying ahead of the risk management curve is crucial in today’s ever-evolving business world. Considering the unpredictable weather patterns, heightened environmental concerns, shifting workforce dynamics and digital innovations, the need for effective risk management has never been more paramount.

This blog post explores five trends shaping risk management strategies today and considerations for addressing them.

Trend 1: Extreme Weather Continues to Drive Rising Property Insurance Rates.

Extreme temperatures, wildfires, hurricanes, floods and other natural disasters are causing insurance carriers and reinsurers to scramble to cover the catastrophic losses, straining financial resources and profitability. The surge in claims has insurance carriers concerned: Environmental risks are being deemed too high and losses too significant.

And there’s more for insurance carriers to consider than the cost of the claims. More states are implementing strict regulations or requirements to cover the risks of environmental events. Remaining compliant with these ever-changing regulations is becoming more costly, leaving many carriers to decide whether it’s financially viable to continue operating within those states. Rising reinsurance costs are adding to the financial burden.

As more disasters occur, the long-term sustainability of these insurance companies is put at risk, and rates rise. In 2023, average commercial property insurance rate increases were again in the double digits (see Hylant’s Commercial Insurance Market Update). Some insurance carriers began withdrawing from markets with high risks of weather disasters.

Yet businesses need a solution to continue operating. Fortunately, captive insurance programs can fill the gaps left by the traditional insurance market. With a captive, organizations can address environmental impact liability by developing an insurance program to address specific risks that may go uninsured otherwise. To learn more, read Addressing Extreme Weather Events Through Captives.

Trend 2: Demand for Environmental Justice Is an Increasing Risk.

In late November, a train derailed in Rockcastle County, Kentucky. Molten sulfur carried by the train caught fire and burned for a day, releasing toxic levels of gas into the air. Nearby residents sued the railroad company for allegedly exposing them to substances known to cause health issues in humans.

Earlier in the year in Ohio, a metal factory exploded, possibly exposing nearby residents to hazardous materials, including lead. Elsewhere in the state, hurricane-force winds toppled power lines, ripped open roofs, sent asbestos and other pollutants flying, and created an opportunity for water intrusion and mold. Headlines are increasingly full of stories like these.

Across the country, public awareness of environmental threats has significantly increased. Neighbors are questioning everything around them—and they have little tolerance for accidents and occurrences that jeopardize their health, real estate values and businesses. The affected parties’ demand for environmental justice might be directed towards your operation.

Companies should identify their operational vulnerabilities and discuss how to fill gaps created by standard pollution exclusions in commercial general liability and property insurance policies. Read Why Consider Environmental Impairment Liability Insurance Now.

Trend 3: Implementing Return-to-Work Policies Is Challenging.

According to a Resume Builder survey of 1,000 company decision-makers, 90% of companies plan to implement return-to-work policies by 2024. They believe that having employees work in person improves company culture and increases collaboration, productivity and relationship development opportunities.

Yet 80% of bosses regret their initial return to office decision, according to a 2023 study of employers by software company Envoy. Employers say they would have formulated their plans differently if they had understood office attendance, office amenities and other factors.

Furthermore, employers hiring for on-site positions may struggle to compete with organizations that offer more flexible options for talented individuals. To avoid employee backlash and prevent attraction and retention issues, employers must develop policies that balance the cultural benefits of in-person work with employees’ needs and wants.

Read Attracting Employees for On-Site Positions for some strategies employers can use to attract and retain in-person employees.

Trend 4: Cybercriminals Continue to Find New Ways to Exploit Weaknesses.

According to IBM’s annual Cost of a Data Breach Report, 95% of studied organizations have endured more than one data breach. The report also notes that the worldwide average data breach cost has risen 15% over the last three years.

According to Hylant partner and cybersecurity operations leader Arctic Wolf, industries most at risk from attack in 2023 included finance and insurance, healthcare, construction, government, education, and energy and utilities. Industries experiencing the highest median ransom demands included energy and natural resources, finance and insurance, shipping and logistics, business services and manufacturing. Cyberattacks and data breaches threatened not only large employers in 2023 but also presented a major concern for mid-size and small businesses. Smaller businesses can be more vulnerable to cyberattacks because they lack the resources, protocols or systems to protect themselves.

Cybercriminals have found that exploiting human weakness is easier than attacking networks. Their current weapon of choice: business email compromise (BEC). According to Arctic Wolf, BEC-related investigations doubled in the first half of 2023, a continuing trend from the previous year. Read Understanding Common Types of Cyberattacks to learn more.

For organizations to truly protect themselves from cyber risks, corporate boards must play an active role. Not only does involvement from leadership improve cybersecurity, but it can also reduce personal liability for board members. Read Nine Cyber Risk Questions Every Board Should Ask to learn more.

Trend 5: The Economy Remains Unpredictable. M&A Decisions Must Be Considered Even More Carefully.

Influenced by higher interest rates, tighter lending standards, increased inflation and recession concerns, the number of M&A deals decreased dramatically in 2023 compared with the two previous years. This was especially true of mega deals.

However, opportunities still exist. Consulting services groups such as PWC believe that mid-market transactions may dominate the market this year.

As these companies enter the due diligence phase of their M&A transactions, they will undoubtedly focus on financials, asset adequacy and issues related to compliance, taxation and the law. Those seeking competitive advantage, however, will also focus on insurance due diligence.

Adding an insurance risk manager to the deal team can help the company avoid unwelcome surprises and enhance returns. However, they must ensure that the insurance partner can move at the speed of M&A.