As the world continues to grapple with the impacts of the coronavirus pandemic on businesses globally and in Australia 'a COVID trio' of key, interrelated risks has emerged, according to the Allianz Risk Barometer 2021.
Allianz is a Gallagher insurance partner and its annual risk report surveys almost 2800 CEOs, risk managers, brokers and insurance expert respondents from over 90 countries to present global data-driven insights and the key risk concerns for businesses. The 2021 findings show the major risks increasingly affecting businesses worldwide with the top three risks forming 'a COVID trio' ‒ the strongly interlinked risks of business interruption, pandemic outbreak and cyber incidents ‒ highlighting the vulnerabilities of globalisation and connectivity in modern businesses.
Another issue of top concern is the risk of market developments (#4), reflecting the rising insolvency rates and mergers and acquisitions following the pandemic, with increases expected in the United States, Brazil, China and core European countries. It is also expected that COVID-19 will likely spark a period of innovation and market disruption, accelerating the adoption of technology, giving rise to new competitors.
Of less concern compared to last year: changes in legislation and regulation (5th) natural catastrophes (6th), fire/explosion (7th), macroeconomic developments (8th), fire/explosion (9th), political risks and violence (10th).
Top 10 business risks ranked by Australian businesses
In Australia pandemic outbreak also rated as the leading risk, with business interruption moving up to 2nd place including supply chain disruptions, with regulatory changes and cyber incidents also ranking in the top 5. Natural catastrophes (fire, storms etc), after Australia’s horrendous 2019/2020 bushfires later termed the 'Black Summer', have moved up into the top risk concerns and becoming a new entry, respectively.
Business interruption and supply chain vulnerabilities evident globally
In recent decades supply chains have become increasingly global and complex, and insurers have sustained amplified business interruption claims in industries including the automotive, electronics and manufacturing sectors as modern manufacturing, just in time inventory and increased reliance on fewer suppliers have driven up the costs associated with fires and natural catastrophes.
Business disruption and interruption during 2020 forced many businesses to suspend and/or drastically change operations, driving a renewed focus on the need to build more resilient supply chains. The pandemic has highlighted the importance of agility: companies that were quickest to react to the pandemic were those that had an adaptive and embedded risk management approach.
Businesses are reacting to these supply chain pressures in terms of how quickly they are able to source alternative suppliers in different locations, including nearshoring. Of the European businesses canvassed, 46% expect to make changes to supply chains and 70% of that number intend to find alternative suppliers, with, 20% of companies surveyed considering finding new suppliers domestically to help achieve operational resilience.
Companies are actively working to de-risk supply chains and strengthen their business continuity strategy.
Business continuity and scenario modelling to assist with business interruption planning
Business continuity planning also came into sharp focus during the pandemic as companies discovered their responses couldn’t keep up with the fast pace of the pandemic and public health measures. Many were compelled to set up dedicated COVID-19 response committees bringing together key corporate functions and senior managers.
While these responses were reactive, to prepare for future disruptive events companies need to think ahead and consider how their business, market, customers and suppliers might change in situations that challenge working environments and their supply chains, Allianz experts advise.
To develop business continuity solutions businesses will need to collect data, utilise analytics and identify what is insurable, as well as the value of intangible assets such as supply chains and reputation.
Undertaking projections and analysis will also help to clarify the impacts that are insurable, assist underwriters in providing cover for these exposures —and to offer risk engineering services and alternative risk transfer solutions —as well as to find new ways to address uninsurable risks.
COVID_19 is a reminder that not all perils are insurable, and that risk management and business continuity planning play a critical role in helping businesses survive extreme events.
The value of professional risk advice
Engaging risk management specialists to conduct an analysis of your exposures can help to identify risks that you may have overlooked, develop a focus on improving business resilience and also develop business risk plans to present to and negotiate with insurers.
Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient’s industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers’ control.
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