Allianz Risk Barometer 2021: organizations looking to de-risk supply chains and boost business continuity management
- Published: Thursday, 21 January 2021 10:59
A trio of COVID-19 related risks heads up the recently published 2021 Allianz Risk Barometer, reflecting the potential disruption and loss scenarios that companies are facing in the wake of the pandemic. Business interruption (#1 with 41 percent responses) and pandemic outbreak (#2 with 40 percent) are this year’s top business risks with cyber incidents (#3 with 40 percent) ranking a close third. The annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of 2,769 experts in 92 countries and territories, including CEOs, risk managers, brokers and insurance experts.
“The Allianz Risk Barometer 2021 is clearly dominated by the COVID-19 trio of risks. Business interruption, pandemic, and cyber are strongly interlinked, demonstrating the growing vulnerabilities of our highly globalized and connected world,” says Joachim Müller, CEO of AGCS. “The coronavirus pandemic is a reminder that risk management and business continuity management need to further evolve in order to help businesses prepare for, and survive, extreme events. While the pandemic continues to have a firm grip on countries around the world, we also have to ready ourselves for more frequent extreme scenarios, such as a global-scale cloud outage or cyber-attack, natural disasters driven by climate change or even another disease outbreak.”
The COVID-19 crisis continues to represent an immediate threat to both individual safety and businesses, reflecting why pandemic outbreak has rocketed 15 positions up to #2 in the rankings at the expense of other risks. Prior to 2021, it had never finished higher than #16 in 10 years of the Allianz Risk Barometer, a clearly underestimated risk. However, in 2021, it’s the number one risk in 16 countries and among the three biggest risks across all continents and in 35 out of the 38 countries which qualify for a top 10 risks analysis. Japan, South Korea and Ghana are the only exceptions.
Other risers in the Risk Barometer include macroeconomic developments (#8 with 13 percent) and political risks and violence (#10 with 11 percent) which are, in large part, a consequence of the pandemic, too. Fallers in this year’s survey include changes in legislation and regulation (#5 with 19 percent), natural catastrophes (#6 with 17 percent), fire/explosion (#7 with 16 percent), and climate change (#9 with 13 percent), all clearly superseded by pandemic concerns.
Prior to the COVID-19 outbreak, business interruption (BI) had already finished at the top of the Allianz Risk Barometer seven times and it returns to the top spot after being replaced by cyber incidents in 2020. The pandemic shows that extreme global-scale BI events are not just theoretical, but a real possibility, causing loss of revenues and disruption to production, operations, and supply chains. 59 percent of respondents highlight the pandemic as the main cause of BI in 2021, followed by cyber incidents (46 percent) and natural catastrophes and fire and explosion (around 30 percent each).
The pandemic is adding to the growing list of non-physical damage BI scenarios such as cyber or power blackouts.
“The consequences of the pandemic – wider digitalization, more remote working and the growing reliance on technology of businesses and societies – will likely heighten BI risks in coming years,” says Philip Beblo, expert in AGCS’s global Property underwriting team. “However, traditional physical risks will not disappear and must remain on the risk management agenda. Natural catastrophes, extreme weather or fire remain the main causes of BI for many industries and we continue to see a trend for larger losses over time.”
In response to heightened BI vulnerabilities, many companies are aiming to build more resilient operations and to de-risk their supply chains. According to Allianz Risk Barometer respondents, improving business continuity management is the main action companies are taking (62 percent), followed by developing alternative or multiple suppliers (45 percent), investing in digital supply chains (32 percent) and improved supplier selection and auditing (31 percent). According to AGCS experts, many companies found their plans where quickly overwhelmed by the pace of the pandemic. Business continuity planning needs to become more holistic, cross-functional, and dynamic, monitor and measure emerging or extreme loss scenarios, be constantly updated and tested and embedded into an organization’s strategy.
Cyber threats intensify
Cyber incidents may have slipped to #3 but it remains a key threat with more respondents than in 2020 and still ranking as a top three risk in many countries, including Brazil, France, Germany, India, Italy, Japan, South Africa, Spain, UK and the US. The acceleration towards greater digitalization and remote working driven by the pandemic is also further intensifying IT vulnerabilities. At the peak of the first wave of lockdowns in April 2020, the FBI reported a 300 percent increase in incidents alone, while cyber crime is now estimated to cost the global economy over $1trn, up 50 percent from two years ago. Already high in frequency, ransomware incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands, as highlighted in the recent AGCS cyber risk trends report.