Insight & Analysis

What is your Brexit risk?

Published: Jan 2017

A new tool from Aon Global Risk Consulting lets you find out.

Brexit is a perplexing topic. Indeed, the UK’s decision to leave the European Union is such an unprecedented occurrence in history that nobody – not even the Bank of England’s chief economists – seems very sure what the eventual impact will be.

For business leaders, the great unknown of Brexit poses a plethora of questions, especially around the risks and opportunities it creates for the organisation.

Quantifying the risk

In reaction to this and to help business leaders navigate these uncertain waters, risk management consulting and global insurance broker Aon has launched its Brexit Navigator tool.

The solution is designed to provide a three-step approach to evaluating the impact of Brexit risk exposures on the business.

Firstly, it will enable business leaders to input a range of data that will help provide a baseline assessment that indicates how ‘Brexit ready’ the company is. The solution does this by mapping out the potential risks and opportunities based on the four EU freedoms; the free flow of services, goods, capital and people and the impact of Brexit on these.

With this data in place the parameters around their risk tolerance and appetite of the business can be considered. Suggestions on changes that need to be made to align risk management practices and insurance programmes will be offered.

Finally, a sensitivity module can be used to calculate the impact of these changes based on different Brexit scenarios and outcomes.

It is worth noting that the solution is not static and the underlying algorithms can and will be altered to provide more accurate scenario outcomes as the political and economic landscape evolves.

Filling a need

Aon’s solution comes at a critical time for businesses. As Eddie McLaughlin, Chief Commercial Officer EMEA, Aon Global Risk Consulting tells Treasury Today: “Businesses are finding it difficult to assess in any meaningful way the impact of Brexit due to the numerous potential scenarios and variables.

“This is why we have provided a risk based framework (akin to scenario analysis) to navigate this Brexit ‘minefield’. It is not the whole answer but certainly progresses an organisation’s thinking and planning around Brexit.”

Indeed, McLaughlin outlines that at present, business leaders have real questions about subjects ranging from employee related issues such as recruitment, retention and pensions to how the Brexit decision will influence the trading landscape, for example regulation, inward investment, suppliers and business partners.

And treasury should be an integral part of the working group looking to answer these questions. “At present, we see finance and treasury primarily involving itself in traditional hedging arrangements dealing mainly with FX (where there has been an immediate impact from Brexit),” says McLaughlin. “But the risks and opportunities around the EU four freedoms span financial, strategic, operational, regulatory and hazard themes and these are interdependent. As such, financial risk management alone will be insufficient in comprehensively addressing Brexit – there will need to be a more ‘enterprise risk based’ approach.”

Parting thoughts

Even with this tool it remains difficult to quantify fully what risks Brexit will create for businesses in the UK, Europe and beyond. But McLaughlin is sure about one thing: “The biggest risk is failure to prepare and develop scenario based contingency plans for a variety of Brexit outcomes.”

For McLaughlin, the key is to be prepared “undertake a baseline assessment and integrate into your business planning process,” he says. “Maintain a Brexit risk register as part of your enterprise risk management process and monitor this over time.”

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