Workforce shortages, natural disasters top risks for Puerto Rico companies
Aon’s latest survey reveals human capital challenges and storms are major concerns.
Workforce issues and natural disasters dominate the list of the top 10 critical risks Puerto Rico companies are facing, according to Aon’s 2023/2024 Global Risk Management Survey.
The survey, conducted in June and July 2023 by the professional services firm, revealed that workforce shortages are the No. 1 risk local companies face today. In fact, risks associated with human capital occupied three spots in the top 10, with failure to attract or retain talent at No. 3 and absenteeism at No. 7. Furthermore, when it comes to the risks companies expect to face over the next three years, an aging workforce was ranked among the top five.
Given Puerto Rico’s experiences with hurricanes, tropical storms and earthquakes, it comes as no surprise that weather/natural disasters ranked as the second-highest risk for local businesses.
Puerto Rican companies are also vulnerable to cyber attacks/data breaches (No. 4), increasing competition (No. 5), economic slowdown/slow recovery (No. 6), business interruption (No. 8), regulatory/legislative changes (No. 9), and supply chain or distribution failure (No. 10).
On a global scale, companies are most concerned about cyber attacks/data breach (No. 1), business interruptions (No. 2), and economic slowdown/slow recovery (No. 3). The other top global risks include failure to attract or retain top talent (No. 4), regulatory/legislative changes (No. 5), supply chain or distribution failure (No. 6), commodity price risk/scarcity of materials (No. 7), damage to reputation/brand (No. 8), failure to innovate/meet customer needs (No. 9), and increasing competition (No. 10).
Human capital challenges
“It is interesting to see that in Puerto Rico there’s a lot of worry regarding human capital, while globally, only failure to attract or retain top talent makes it to the top 10,” Karla Ruiz, country commercial director for Aon in Puerto Rico, told News is my Business.
“Companies are concerned about turnover, absenteeism and how they can provide services when they lack personnel. So the data is relevant for their risk management strategies and continuity plans,” Ruiz explained.
Of the local companies interviewed, 60% said they are prepared to manage these top 10 risks, while 39% reported that they continue to have financial losses stemming from these risks.
“So on the one hand, they’re prepared, but on the other hand, they continue to experience financial losses. What we want to achieve is to lower that number. To the extent that you have robust continuity plans for each of the top risks, you should have a lower tendency to financial impact,” Ruiz said.
Most of the local companies surveyed, 61.5%, reported relying on their leadership to identify, manage and mitigate risk. This person may be a chief financial officer, someone who is focused on financial and operational aspects, or a human resources manager. However, Ruiz warned that this approach is likely to fail.
“These individuals don’t necessarily have adequate risk management training because this is a function they didn’t train for in their jobs — this is another hat they wear,” she said.
“This method is reactive, not proactive, because the companies are making decisions based on what they’re experiencing and on their leaders’ criteria, and not anticipating risks that are particular to that industry or business,” she added.
Companies that cannot hire a risk manager or set up a risk management department have other options.
“If you don’t have the resources to have a full-time risk manager on staff, you should set up an internal task force or hire a consultant who can provide the data and analysis you need to manage your risk,” Ruiz advised.
In Puerto Rico, only 46.2% of the companies said they have a formalized risk management department. However, that doesn’t mean that they have a risk manager on staff.
“They may have an insurance department that deals with business continuity and insurance issues. I dare say that maybe only 5% have a risk manager with the knowledge, title and job description required for that position,” she said.
Overreliance on insurance
Companies also tend to rely too much on insurance policies, only to discover that many risks are either or partially or completely uninsurable. Only 20% of the top 10 risks are fully insurable, while the remaining 80% are either partially insurable or require different management approaches, such as market data analysis and benchmarking, rather than transferring the risk to insurers, Ruiz said.
“When something happens, they’re left with, ‘What do I do now?’ — and that’s a reactive, rather than proactive, process,” Ruiz explained.
One of the key insights or takeaways of Aon’s survey is that, while in the past companies were more focused on financial risks, today risk management has shifted to a more holistic approach that integrates other segments of an organization.
“Particularly in this current volatile environment, companies need to be able to identify, manage and mitigate their top risks in order to effectively develop their strategies and meet their business goals,” Ruiz said.
Following financial losses stemming from the 2017 hurricanes and the COVID-19 pandemic, many local organizations are now seeking better terms and conditions to mitigate their risk and lower costs, Ruiz noted, adding that companies often are unaware of other solutions.
“Sometimes, due to a lack of knowledge or information or because they’ve been operating under traditional or standardized models, companies don’t look for alternatives. But with higher insurance premiums and rates, they should look into what’s newly available in the market, what solutions they can implement to mitigate their risk and lower their costs,” Ruiz advised.
When it comes to insurance, risk management pays off in several ways, continued Ruiz.
“When insurers see that an organization is prepared to handle a certain amount of risk, they’re more willing to quote that risk. So companies not only benefit from mitigating their risk but also from having less difficulty selling their risk to insurers and from lower premiums or better terms and conditions, such as lower deductibles and other benefits they may not be able to obtain if they lack sound continuity plans,” Ruiz added.
