In a world of constant change and evolving challenges, risks are more interconnected than ever. Considering the speed at which news travels, the heavy focus on environmental, social and governance (ESG), and the daunting geopolitical environment, organizations must be acutely aware of the changes, as well as the expectations placed on them by governments, stakeholders and consumers. Throughout 2023 and beyond, compliance concerns will remain prevalent and organizations will need to navigate the complexities to meet their business goals.

Environmental, social and governance (ESG)

The factors that make up ESG are inarguably good for our planet, people, and business. However, when it comes to environmental (caring for the Earth), social (caring for colleagues, clients and communities) and governance (organizational conduct), the expectations placed on businesses aren’t always clear. At the same time, the presence of social inflation, an increasingly litigious environment around the globe, and the influence of social media make it even more critical that organizations get ESG right. Risk comes at companies from many angles: not doing enough, not doing what you say you’re going to do, not presenting your story well, and not responding to a potential crisis properly. Organizations are advised to be realistic in their ESG endeavors to not get out over your skis, but at the same time be fully aware of how ESG can bring your organization both risk and reward.

Recalls and product safety

Speaking of crisis, one surefire way to potentially damage your brand and expose your organization to heightened litigation risk is to fumble your response to a recall or product safety issue. After another significant year of recalls and increased regulatory efforts and enforcement across the globe, we expect another year of scrutiny in product safety and compliance. Businesses should constantly review and update their product recall, crisis and communication plans to ensure they can withstand the stress of a recall or other product safety issue.

Social inflation and the value of mitigation

Given the substantial impact and increased frequency and severity of litigation, organizations are well served to allocate more attention and resources toward avoidance and mitigation — whether it’s in the realm of facility safety, human resources, automobile safety or even facility design. As a former risk manager, I know all too well the internal discussions that take place around spend associated with mitigation or prevention not involving human life. When insurance protection was less expensive (or perhaps more readily available) and the litigation environment was more equitable, finding the ROI for a particular mitigation effort was more challenging. Today, the risk has significantly increased, and risk transfer is often not an option. Whether it’s a fire safety redundancy, a wind or snow load factor for a building, or cameras for your over-the-road tractors — diligent risk managers should dust off their calculators and review the risk/reward based on the tricky environment.

Global connectivity

If it was not already apparent before the pandemic, it certainly is now: the risks our organizations face — no matter the industry — are interconnected. Case in point: consider how the pandemic in China impacted – and continues to impact - the supply chain in the United States. Then factor in the influences of climate change and geopolitical instability. For risk managers today who are studying the actuarial frequency and severity of risks, you are well advised to detour from the traditional “rearview mirror” analysis approach of extrapolating forward and consider risks across coverage lines and with multiple touchpoints. For example, a supply chain disruption could impact coverage related to contingent business interruption (BI), directors and officers (D&O) liability, Employment Practices Liability Insurance (EPLI), and perhaps even liability coverage at the same time – not to mention brand and consumer loyalty.

U.S. political environment

Perhaps it’s always been this way and it’s a consequence of social media being so accessible, but for many organizations, the political environment is more volatile and risky. In addition to the heightened regulatory and enforcement efforts around product safety mentioned above, consider these:

• Regulations in a number of sectors are being revised; there is an awareness of the need for legislation to keep up with rapidly developing technology, with big changes on the horizon around product liability, cybersecurity, artificial intelligence (AI) and the regulation of online platforms.
• We watch for federal involvement in the U.S. workers’ compensation environment, particularly with an eye on the Medicare physician fee schedule rule, proposed pharmacy benefit manager pricing and reimbursement transparency initiatives and regulatory influence in telemedicine.
• The U.S. mid-term election deployed a new crop of legislators to state capitals across the country. These newcomers could significantly affect the development and passage of future legislation on workers’ compensation and auto physical damage.

For organizations that successfully navigate risk, comes reward. None of us know what 2023 will bring, but in the unexpected, you can be sure that Sedgwick will be here for you, watching trends, sharing ideas, offering support, bringing the best of our global and local resources, and imagining what’s next.

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