The economic and political landscape in 2018 has been a leading contributing factor to the overall risk levels for business leaders globally. In our recent Risk and Confidence Survey, 82% of respondents agreed they were operating in a moderate to high risk environment, with the majority identifying economic and political risks as a primary concern.
Politics and economics are close bedfellows and from the findings of our global market research, it is clear that business leaders are clearly rattled by the threat of these risks to trade growth. Looking specifically at Brexit, almost half (48%) of business leaders responding to the survey agreed that Brexit would have a moderate or heavy impact on their business.
In the professional services world, economic and political factors can weigh heavily on our clients and we are not surprised to see these risks feature in the top three risk concerns for multinational organisations globally within this sector.
As we look forward into 2019, we've identified some areas where economic and political risk could impact the risk portfolios of some of the main industries within the UK professional services sector.
For surveyors, claims are inextricably linked with economic patterns. Rises in interest rates can lead to mortgage payment defaults as can uncertainty around Brexit. Both of these factors increase the risk to surveyors.
With regards to interest rates, the market has been quite fortunate. In the UK, widespread speculation of a potential increase in interest rates in May 2018 from 0.5% came to nothing, and only inched up to 0.75% later in the year with minimal impact.
However, it wasn't so much the relatively modest increase in interest rates in 2018 which was significant – it was the message it sent about the future direction of rates which was deemed to be more important.
As we enter 2019 against a very uncertain political and economic backdrop - both locally in the UK and globally - surveyors will be mindful of the impact these forces could have on interest rates and to ensure reports and valuations contain the correct caveats.
Lawyers will always face the risk of being scrutinized over the advice they provide clients and are adept when it comes to managing and transferring this liability. It's part and parcel for many of those operating within the professional services sector. However, with the economic and political landscape changing at such a rapid pace in some regions, we feel there needs to be a heightened level of awareness.
Brexit and what the outcome of this will be needs to be a big consideration factor for lawyers and solicitors involved with advising companies on what their 'game plan' should be. Whether you're advising on company relocation or ensuring a company is complying with changes in regulation as a result of Brexit or anything else, there is a lot of exposure here that needs to be managed correctly.
In 2018, we saw a number of large brands go insolvent, including House of Fraser, Toys 'R' Us UK and Maplin, and for accountants, this is particularly significant. Depending on the reasons and terms for insolvency, the spotlight can be turned on the advice the company was given in the run up to such an event, as we saw with British multinational facilities management and construction services company, Carillion.
For accountants mitigating their exposures when it comes to these events, there should be a review of terms and conditions and when it comes to retainers, additional time and effort should be spent on what exactly is being specified in terms of the scope of work to ensure any exposure is both managed and transferred appropriately.
By Tina Booth, AVP Professional Indemnity
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Direct: +44 (0)20 7743 6829