Surprise, surprise … business interruption (BI) has been named the most important business risk of 2021. It is one of the so-called “COVID trio” to take the top three risk spots in the Allianz Risk Barometer 2021, alongside pandemic outbreak in second place, and cyber incidents in third.
The tenth Allianz Risk Barometer was the biggest yet, incorporating the views of 2,769 respondents from 92 countries and 22 industry sectors. A huge 44% of respondents ranked BI as the most important business risk. It also ranked top in nine countries and the Americas region, as well as multiple sectors, including: chemical, pharma, and biopharma; consumer goods; engineering and construction; real estate; food and beverages; manufacturing; mining; oil and gas; renewable energy; retail and wholesale; and transportation.
Business interruption is really “the overarching umbrella” on most of the top 10 global business risks identified in the Allianz Risk Barometer, according to Heather Thompson, ARC Multiline Engineer at Allianz Global Corporate & Specialty (AGCS). Every exposure causing risk managers sleepless nights, from the COVID trio to natural catastrophes, fire, and political risks and violence has the potential to cause problems and interruptions in the daily interactions and operations of companies around the world.
“The COVID trio [BI, pandemic outbreak and cyber] has identified specific exposures that companies have had to deal with almost simultaneously,” said Thompson. “We’ve all been affected by the pandemic, but some companies were exposed to vulnerabilities they never even knew existed. Even the best-prepared companies were unprepared for the size, the scope and the duration of the pandemic.”
One thing that almost all of the top risks in the Allianz Risk Barometer 2021 have in common is their ability to impact the supply chain. Whether it’s a cyberattack that shuts down a company’s core systems, a natural catastrophe that floods a manufacturing plant, or economic policy and political sanctions that are delaying or blocking the movement of goods – contingent business interruption risk is ever present, and companies are looking to mitigate it wherever possible.
A recent Global Supply Chain Survey by Euler Hermes, entitled: ‘In search of post-COVID-19 resilience’ found that 55% of companies are considering looking for new suppliers in the next six to 12 months, and 62% are considering it in the long-term. While less than 15% of companies are considering reshoring, around 30% of respondents said they would favor nearshoring – bringing production to a nearby country.
“A lot of companies found that during the pandemic, they were unable to get access to critical business components to produce products [and] they could not get access to processes or even knowledge that they would need from abroad,” said Thompson. “Bringing some of those processes and bringing some of those resources and raw materials closer to home may assist in a future event so that they would not have to suffer such consequences as they did in this pandemic.
“When companies are contemplating nearshoring or reshoring, or even bringing some of those processes for critical components in-house, I do have some concern about the hazards with some of those processes. So many processes and components that we’ve offshored have been because of the hazards associated with producing those products. So, bringing those closer to home or bringing them in-house does represent a higher risk for companies that they need to contemplate before [making that decision].”
The best way for companies to prepare for future extreme BI events is to shore up their business continuity plans and to test them against bigger and more complex risk scenarios, according to Thompson. Two specific aspects of those plans are critical: business impact analysis, which is where a company looks at their critical business functions and how they might be affected by an event, and supply chain analysis.
“During the pandemic, many companies realized that some of those [business] functions weren’t quite as critical as they thought, and other functions were found to be vital to the organization,” said Thompson. “So, having another business impact analysis to determine what is truly needed for their business to survive is the first point.
“Many companies and organizations are doing a supply chain risk assessment, where they’re looking at the contractual language that they have [with suppliers] and the delivery expectations that are embedded within those contracts. They’re looking at multiple suppliers, instead of just relying on one for specialty products, [and] they’re also considering what their suppliers’ business continuity programs look like, as a company is only as strong as their weakest link.”
Another area of importance is a company’s overall business resilience program, which should include crisis management, emergency preparedness, and also disaster recovery.
Thompson commented: “Through crisis management, you’ll be able to help with reputational risk because that involves communicating to your customers, making sure that people know where you are and can rely on you. The emergency preparedness piece of it takes care of your people so that you can continue your operation. And then lastly, the disaster recovery, connected with IT, you can determine some of the cost to bring some of those systems online should a catastrophe occur.”