Aon’s 2021 Global Risk Management Survey (GRMS) allows quantitative data to be combined with qualitative expert insights to discuss risks facing professional service firms.
Since the 2019 GRMS report, the key risks identified have remained relatively consistent. The risk landscape for professional service firms has been impacted by the ongoing impacts of COVID-19, and indeed these are probably partially reflected in the responses within cyber and business interruption risk. The risks around attracting and retaining talent also may have changed and become more challenging during COVID-19.
In the coming years we anticipate increasing prominence for environmental, social and governance (ESG) risks, although again, reputation, talent, and regulatory risk, which make the current list, include ESG components.
1. Cyber attacks/ data breach
2. Damage to reputation and brand
3. Failure to attract and retain top talent
4. Business interruption
5. Economic slowdown/ slow recovery
6. Failure to innovate/ meet customer needs
7. Data privacy (including GDPR) requirements/ non-compliance
8. Increasing competition
9. Regulatory/ legislative changes
10. Tech failure/ system failure
1. Damage to reputation and brand
2. Cyber attacks/ data breach
3. Failure to attract and retain top talent
4. Economic slowdown/ slow recovery
5. Increasing competition
6. Business interruption
7. Failure to innovate/ meet customer needs
8. Accelerated rates of change in market factors
9. Third-party liability
10. Regulatory/ legislative changes
Click here to view the full risk ranking and industry report
Although the risk of cyber attacks and data breaches has overtaken reputational damage as the top risk facing professional service firms, the top three risks remained stable from 2019 to 2021.
COVID-19 and the Evolution of Professional Service Firms
COVID-19 and the resultant social immobility forced firms to quickly expand remote working capabilities to remain operational. Many firms adapted efficiently and effectively by investing in necessary technologies and training initiatives to support their employees, but this transition to a digital operating model has exposed many firms to new and evolving cyber risks. In the 2021 GRMS results, cyber risk was ranked as the top risk for professional service firms with business interruption ranking fourth, likely driven by concerns over dependencies on critical non-physical infrastructure and supply chains.
“The risks associated with maintaining and holding large amounts of sensitive client information is a critical concern for law firms, consulting firms, accounting firms and construction/design firms. With data breaches and the misuse of data having the potential to cause material brand/reputational damage, regulatory intervention, first party losses and third-party claims, the short- and long-term penalties of cyber incidents are severe and will remain a top risk.”
Tom Ricketts, Senior Vice President and Cyber Risk Leader, Aon
Sustainable Service Delivery Relies on People
Trust and reputation are critical for sustainable client relationships and reputational damage remains a fundamental concern for professional service firms. Cyber attacks and data breaches have been responsible for high-profile events causing reputational damage and while cyber attacks remain a real and present threat, a sector-wide acknowledgement of ESG obligations is adding new dimensions to reputation risk.
“Employers’ responsibility to provide a diverse and inclusive working environment has been increasingly scrutinized in recent years”
Mark Scarafone, Senior Vice President and Health & Benefits Leader, Aon
Alongside the focus on Diversity, Equity and Inclusion, firms have been reassessing their talent strategy due to other evolving human capital challenges, the different needs and expectations of a multi-generational workforce and the need to ensure effective succession planning. With a cultural shift in expectations being fueled by widespread media coverage, the potential impact of reputational damage from workplace and ESG related claims extend far beyond the direct costs of legal defense and settlement.
Without a talented and stable workforce, professional service firms’ entire service delivery model is threatened: ‘failure to attract and retain top talent’ remains a top risk.
Responding to a Changing Sector
Risk volatility and catastrophic risk are increasingly difficult to manage, driving a need for actionable and industry-specific risk insights; updates; alerts and analytics; risk quantification and modelling; and traditional and non-traditional risk financing solutions.
Firms will need to expand or modify their approach to risk identification and continue to consider the role of risk management, carefully reviewing their risk retention and risk financing strategies to address new and emerging risks, including the use of captives, structured prefunding, fronting, direct insurance and/or reinsurance.
Access the full report for further insights exploring:
- Challenges the industry will face in the next three years
- Surprises in the top 10 risks selected
- The most underrated risks