The vaccines rollouts have begun. Despite teething troubles, the world’s biggest vaccination program seems to be on track, raising optimism that 2021 will be a better year after all.
Risk managers, however, have a busy 2021 ahead.
A Covid-19 related trio of risks – business interruption, pandemic outbreak and cyber incidents – top the Allianz Risk Barometer 2021, the latest edition of the annual survey of risk management experts by corporate insurer Allianz Global Corporate & Specialty.
Unsurprisingly, pandemic outbreak has climbed 15 positions from last year to the second spot. In addition, market and macroeconomic developments as well as political events and violence have gained significance as far as business threats go.
A look at some of the key findings of the survey of risk management experts from 92 countries...
Like most big crises, the outbreak has altered life for both humans and companies.
More than half of the experts surveyed in the Risk Barometer believe that accelerated digitalization is the change that will have the biggest impact on their companies. Following closely is remote working, with half of the respondents foreseeing their corporate DNA altered by this new way of working. Other changes seen as having the greatest influence are increased insolvencies, restrictions on travel and reduced business travel, and rising cyber risks.
The pandemic has also heightened potential threats from market and macroeconomic developments and political events and violence. “Disruption associated with political, economic and social trends, like strikes, protests and civil unrest, is often underestimated,” says Philip Beblo, Global Practice Group Leader Utilities and Services, IT Communication at AGCS. “The economic consequences of the pandemic could fuel further political and social unrest in 2021 and beyond, with potential implications for supply chains and business interruption.”
The speed with which coronavirus spread across the globe took everyone by surprise. Companies too were caught unawares.
While many companies, including Allianz, set up dedicated Covid-19 response committees with representation from key corporate functions, many others struggled to keep their operations afloat. Last year, ‘business continuity plan’ might have been the most-heard phrase in corporate corridors. The focus has only sharpened since.
About 62 percent of the respondents in the Risk Barometer believe that setting up or improving business continuity plans should be a priority.
According to Thomas Varney, Regional Manager of Risk Consulting, North America, at AGCS, the pandemic has shown that business continuity planning must become more holistic and dynamic. “Plans need to be constantly updated and tested, including having alternative suppliers available for raw and intermediate materials. They need to be cross-functional and integrated into an organization’s risk management and strategic processes.”
Even before Covid-19’s seismic power was felt, the rising complexity of global supply chains was becoming a cause of concern for companies. The sudden disruption in 2020 forced them to take a closer look at their supply chains. This year, about 45 percent of the respondents expect to develop multiple suppliers and alternative supply chains to prepare for exigencies. “In reaction to the pandemic, we are seeing clients make changes to their supply chains, including near-shoring (bringing production to a nearby country) and some reshoring and changing the locations of supplies, particularly for U.S. companies,” says Philip.
Efforts to build more resilient supply chains are welcome as they enable businesses to react quickly to market trends, says Georgi Pachov, Head of Portfolio Steering and Pricing at AGCS. “It’s not just about limiting insurance claims, more resilient supply chains should translate to more successful companies.”
Among other measures being considered are investments in digital supply chains; stricter supplier selection, audit and risk assessment; and inventory and safety stock management.
Cyber risks have been a growing concern for the past few years. Cyber incidents had replaced business interruption as the top risk in Risk Barometer 2020. This year, they slid to the third place after pandemic risk.
However, accelerated digitalization in the aftermath of the outbreak has intensified cyber-related threats – be it from ransomware attacks or from technical failure or via the supply chain. According to a survey by McKinsey, companies may have advanced the digitalization of supply chains and operations by three to four years and the importance of digital products has accelerated by seven years.
Of course, there’s no denying that technology has its advantages. Enabling remote working, process monitoring or online sales and servicing, it serves as a useful tool for business continuity. Plus, digitalization of supply chains could increase transparency and potentially reduce the frequency of business interruptions.
However, digitalization brings the risk of more severe consequences when the underlying technology goes wrong. “Displaced workforces create new opportunities for increasingly well-organized and funded cyber criminals to exploit and gain access to networks and sensitive information,” says Georgi. “At the same time, the potential impact from human error or technical failure incidents – already one of the most frequent drivers of cyber insurance claims – may also be heightened.”
Once seen as an issue only for computers and software, cyber risks today pervade multiple spheres of life, from cars to factories to smart devices in homes. “Emerging areas like artificial intelligence (AI) – such as ‘deepfakes’, where realistic media content such as photos, audio and video is modified or falsified by AI – the digitalization of supply chains, automation and the ‘Internet of Things’, as well as new ways of working, could all provide opportunities for hackers and open up new vulnerabilities,” says Jens Krickhahn, a Regional Cyber Practice Leader at AGCS.
The latest survey summarizes the responses of 2,769 risk management experts from 22 industry sectors.
For a more detailed look at this year’s top risks and country-wise highlights, click here for the Risk Barometer 2021.
Allianz Commercial is the center of expertise and global line of Allianz Group for insuring mid-sized businesses, large enterprises and specialist risks. Among our customers are the world’s largest consumer brands, financial institutions and industry players, the global aviation and shipping industry as well as family-owned and medium enterprises which are the backbone of the economy. We also cover unique risks such as offshore wind parks, infrastructure projects or Hollywood film productions. Powered by the employees, financial strength, and network of the world’s #1 insurance brand, we work together to help our customers prepare for what’s ahead: They trust on us for providing a wide range of traditional and alternative risk transfer solutions, outstanding risk consulting and Multinational services as well as seamless claims handling. Allianz Commercial brings together the large corporate insurance business of Allianz Global Corporate & Specialty (AGCS) and the commercial insurance business of national Allianz Property & Casualty entities serving mid-sized companies. We are present in over 200 countries and territories either though our own teams or the Allianz Group network and partners. In 2022, the integrated business of Allianz Commercial generated more than €19 billion gross premium globally.
These assessments are, as always, subject to the disclaimer provided below.
