The risk environment for the mobility sector continues to grow in its scope and complexity. Whether dealing with global supply chain issues against an increasingly fraught geo-political backdrop, or managing a shortage of talent in critical areas like digital and data, mobility businesses cannot afford to be complacent when considering the risks that could derail their operations.
As organizations’ exposure to individual risks intensifies and evolves, so too do the connections between them.
Business leaders are feeling the impact of the true cost of human capital challenges, and the reality that people risk intensifies all other top business risks. Consequently, organizations’ preparedness efforts must follow suit, even amid economic and staffing challenges.
While Aon’s Global Risk Management Survey – which identifies the top risks impacting organisations across all sectors – finds that cyber attack is the number one risk, it’s important to take a closer look at some of the other top risks that mobility organisations will need to manage and mitigate throughout 2024 and beyond (see How Technologies Will Shape the Mobility & Insurance?).
Top 10 Global Risks Facing Organizations Today
- Cyber Attack or Data Breach
- Business Interruption
- Economic Slowdown or Slow Recovery
- Failure to Attract or Retain Top Talent
- Regulatory or Legislative Changes
- Supply Chain or Distribution Failure
- Commodity Price Risk or Scarcity of Materials
- Damage to Brand or Reputation
- Failure to Innovate or Meet Customer Needs
- Increasing Competition
The world is more volatile and the macroeconomic environment in which risks must be managed is in constant flux, according to Insurance and Macroeconomic Outlook in Financial System.
The velocity of risk evolution, which in many areas was triggered by the pandemic, continues to intensify and forge greater interconnectivity between risks.
Protracted inflation and fluctuating interest rates have slowed down the global economy just as geopolitical volatility and workforce shortages reduced commodity production and disrupted supply chains. Frequent and severe weather events caused billions in insured losses and highlighted a large protection gap. Tackling climate change has become a high-profile social and organizational imperative.
Organizations continue to adapt to business models that evolved rapidly amid the pandemic. Chronic workforce shortages, coupled with heightened employee expectations for work/life balance, make competitive employee value propositions and wellbeing strategies essential to attracting and retaining top talent.
Talent is a competitive differentiator: growth, productivity and innovation demand full staffing and leading-edge talent.
While new technologies, including artificial intelligence (AI) and cloud computing, are helping organizations become more efficient, they are also disrupting sectors such as the entertainment industry and prompting ethical debates, concerns over intellectual property infringement and calls for tighter controls.
Trade, technology, weather and workforce stability are the central forces in today’s risk landscape. While each of these forces individually affects risk exposures, their increasing interconnectedness is adding to the complexity of risk and presenting new challenges to business leaders.
Commodity Pricing of Materials
Amongst these top risks is the growing challenge of sourcing the new materials needed. By the end of the decade the demand for lithium – a critical material for battery producers – is expected to more than double to over 4 mn metric tons.
Given the importance of lithium for electric vehicles, some commentators such as the International Energy Agency have warned that the global economy has already seen periods – 2021 and 2022 – when the supply of lithium was not able to keep up with demand, leading to some EV OEMs facing insolvency due to uncertainty around their battery supply.
To try and introduce more certainty, some countries have introduced state aid to guarantee battery supply, such as the US with a US$3 billion funding programme for battery production. But many of these facilities will take time to come online and, in the meantime, the risk of not being able to source the batteries needed will grow.
Supply Chain and Distribution Failures
Another key risk – and one closely linked to the shortage of materials – is the growing complexity of the supply chain. In addition to areas like battery production, the availability of components such as microchips is just as critical and can be interrupted by anything from transport issues, to a political risk problem in the chip producing country.
As vehicles become increasingly complex, and new technologies are added, OEMs need to access new components where they may not have had as much experience.
Governments are again stepping in by looking at ways they can domesticate critical parts of the supply chain to make supply less vulnerable to geo-political events.
Talent Wars
Of course, good businesses need more than just parts and materials to make their products and the human talent requirements for the mobility sector are rapidly shifting.
For businesses to continue to innovate and meet their customers’ demands and expectations, and understand their challenges, they need access to a talent pool wholly different to the skillsets needed less than a decade ago.
As mobility gets more digital, employees with those skillsets are at an absolute premium.
Whether it’s data scientists or software engineers, the demand for these different skills means it is critical, for example, that mobility businesses carefully consider that where they build their facilities has ready access to the right talent pool with a healthy pipeline of future talent.
And that they develop an attractive employee proposition that can compete with all the other industries also on the hunt for similar skillsets.
Brand and Reputation
Aon’s Global Risk Management Survey regularly reports loss of brand and reputation as a top risk due to the adverse impact a negative event can quickly have on the value or even survivability of a business.
Emerging mobility technologies are particularly susceptible to damaging headlines if a battery explodes or an autonomous vehicle hits a pedestrian.
It might be that they experience far less adverse issues than their more traditional mobility counterparts but, until the technologies become more commonplace, expect any problems to attract a disproportionate share of negative media coverage.
Failure to Innovate
Another top risk for mobility is a failure to innovate. Customer expectations and needs in the mobility space change rapidly and the risk of not evolving to meet those needs can quickly leave businesses behind.
This is no small challenge, given it can take as much as seven years to take a vehicle from design to production and a lot can change in that time.
A focus on creating agile businesses that can be more responsive to customers’ demands will help the mobility sector mitigate this potential risk.
Regulatory and Legislative Changes
Regulatory risk is also rapidly changing, and mobility businesses will need to make sure they are in a position both to meet their regulatory requirements for autonomous vehicles but also take advantage of the possible opportunities that regulatory changes could offer.
It’s expected that the government will firm up legislation around micromobility soon which will have an impact on e-scooter and e-bike providers, while the Automated Vehicles Bill currently making its way through parliament will also create new opportunities for autonomous vehicles.
The Government has defined a self-driving vehicle as:
One that has at least one self-driving feature, delivering sufficiently high levels of automation that it meets a legally defined threshold and is capable of safely driving itself with no human input. Such features could provide self-driving capability for all or part of a journey.
However, the Bill uses the Law Commissions’ preferred term of ‘automated vehicles’ (AV) instead of ‘driverless’ or ‘self-driving’ vehicles.
Under the Bill, if a vehicle successfully passes a ‘self-drive test’ (details of which would be determined in secondary legislation), it would become an ‘authorised automated vehicle’ in one of two categories:
- Some AVs will have a ‘user-in-charge’ (UiC) function. This means they would have functionality to both be driven or to drive itself for some or all of the journey. When such a vehicle is driving itself, the driver is not responsible for how the vehicle drives, though they retain other responsibilities such as insurance and vehicle roadworthiness. When the vehicle is being driven, it is treated as a conventional vehicle.
- Alternatively, a ‘no-user-in-charge’ (NUiC) journey would be one where the AV drives itself for the whole journey. No occupant is a driver during the journey and, in some cases, it may not be possible for the vehicle to be traditionally driven, as it may not have a steering wheel or other conventional controls. A licensed operator would monitor the vehicle during the journey and ensure it is properly insured and maintained.
Liability for road offences
If a vehicle passes the self-drive test to be an ‘authorised AV’ (with or without user functions), this would then shift criminal liability for road traffic offences away from the AV’s passengers, and onto the regulated licenced operators who would become responsible for the AV’s journey.
The Bill would allow for new statutory inspectors to be appointed with powers to investigate road incidents involving AVs on a ‘no-blame’ basis, and to request information from licensed operators and the police. The Bill would also make it a criminal offence to market a vehicle as self-driving if it was not an authorised AV.
Permits for automated passenger services
The Bill would allow the Secretary of State for Transport in England, or the relevant minister in Scotland or Wales, to grant permits for automated passenger services (or trials of them) that would disapply existing legislation relating to taxi, bus and private hire vehicles.
Digitalising Traffic Regulation Orders
Under the Bill, local authorities in England would be required to provide information on Traffic Regulation Orders (TROs) to the Secretary of State in a digital format.
TRO information describes local road restrictions such as speed limits, bus lanes and parking bays. This would enable AVs to have an accurate and up-to-date understanding of the road network. This requirement does not extend to Scotland or Wales where local government is a devolved matter.
In addition, mobility businesses will need to continue to have a careful eye on privacy issues given the amount of data they are collecting when it comes to areas like users’ movements.
As custodians of huge amounts of personal data, maintaining compliance and protecting personal information in the right way will continue to be a high priority in terms of risk mitigation.
European commission extendes the validity of the motor vehicle regulation
Insurance Europe has published a set of key messages on the European Commission’s proposal to extend the validity of the Motor Vehicle Block Exemption Regulation (MVBER) by five years, which it welcomes.
While the MVBER does not apply directly to insurers, it helps other companies in the automotive chain to assess whether their vertical agreements with the automotive sector are in line with EU competition rules.
While currently emerging trends, such those resulting from digitalization and new forms of mobility, will have been consolidated in five years’ time, there is a high probability that the MVBER will remain key for the motor sector.
A careful re-assessment of the situation will, therefore, be crucial at that point to adjust to those new trends and ensure fair competition.
The Commission has also proposed updates to a set of supplementary guidelines, which the industry also welcomes, as they reflect the importance that access to vehicle-generated data has for competition.
Vehicle data is essential, however, not only for repair and maintenance services, but also for the provision of motor-related services, such as insurance.
Indeed, guaranteeing access to in-vehicle data would enable insurers to incentivize safer and more fuel-efficient driving through usage-based insurance and other features such as driver feedback and coaching.
It would also help improve insurers’ claims-handling and give them a better understanding of any potential new or emerging risks associated with autonomous driving.
Why are regulatory or legislative changes a Top Risk?
The impact of new laws and regulations can be targeted toward individual sectors or apply more universally. In March 2023, for example, the U.S. Securities and Exchange Commission (SEC) proposed new cyber security requirements for market participants, such as broker-dealers.
Other regulations can be more sweeping: the European Union’s Corporate Reporting Sustainability Directive, due to go into effect in 2025, will apply to 50,000 large EU companies as well as multinationals with annual revenues of more than €150 million ($160 million), requiring them to report on matters such as sustainability, diversity and anti-corruption.
Organizations must monitor and adhere to regulations set by governments to meet a wide variety of policy aims. These policies, rules and laws may vary dramatically across countries and industries.
Compliance and regulatory costs are not a new or unforeseen burden for business. However, uncertainty about upcoming regulatory changes may affect business confidence. Companies active in multiple jurisdictions must track and comply with a wide variety of complex laws and regulations. The following are some examples.
Cyber Regulation
Businesses already grapple with the direct costs of being targeted in cyber attacks. Now, some regulators are also initiating actions against those businesses that, among other things, fail to notify those affected by the breach or demonstrate that the businesses made reasonable efforts to protect the data they hold.
Privacy Laws
More than five years on from the enactment of the General Data Protection Regulation (GDPR), compliance remains critical, and companies have further enhanced their processes to protect personal data. In the U.S., a patchwork of data protection legislation across states increases the complexity of compliance.
Pay Transparency
The EU is set to introduce new legislation that will require employers to disclose pay ranges in job listings and to current employees. Certain U.S. states have already enacted similar legislation. This could expose organizations to legal claims when there is pay inequality that could be perceived as discriminatory.
Climate and Sustainability
Regulations aiming to limit global warming and protect the environment continue to be introduced around the world. However, companies face uncertainty regarding the level of detail and information required by disclosure rules, as well as the cost of compliance.
Artificial Intelligence
Proposed amendments to the EU’s Artificial Intelligence Act would impose penalties as high as 7 percent of annual revenues for violations, a level that exceeds even the penalties posed by GDPR.
Biometrics Laws
The use of biometrics — the automated recognition of individuals based on unique physical characteristics — by companies, including social media firms, has led to new legislation. The Artificial Intelligence Act, for example, would prohibit biometric systems that categorize people, and an Illinois law could lead to significant damage awards against employers that record or transmit biometric employee data without consent.
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AUTHOR: Curtis Scott – Executive Vice President at Aon, Future Mobility & Digital Economy, Insurtech Advisor, Board Member
Edited by Oleg Parashchak – CEO Finance Media and Beinsure Media
