Challenges in the macroeconomic environment, fire explosions as well pandemic related issues have been cited as the most disruptive developments to the business community by Allianz Risk Barometer research in 2021.
According to the research, 40 percent of respondents in a survey conducted by the research institution said macroeconomic challenges and fire explosion concerns top the risks businesses expect would impact on their operations this year.
The pandemic outbreak, theft, fraud and corruption, as well as cyber incidents were all cited among the risks businesses consider disruptive.
“The pandemic shows that extreme global-scale Business Interruptions (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 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. 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,” the report said.
The survey further stated strategies companies are adopting to withstand the various disruptions businesses anticipate.
According to Allianz Risk Barometer respondents, improving business continuity management are the main action companies are taking; followed by developing alternative or multiple suppliers; investing in digital supply chains and improved supplier selection and auditing.
Further, the experts recommend that, for many companies which found out that their plans were 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 such organization’s strategy.
Other revelations in the report
Cyber perils intensify
Cyber incidents may have slipped to number 3 but it remains a key peril 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.
“Covid-19 has shown how quickly cybercriminals are able to adapt and the digitalization surge driven by the pandemic has created opportunities for intrusions with new cyber loss scenarios constantly emerging,” says Catharina Richter, Global Head of the Allianz Cyber Center of Competence at AGCS.
“Attackers are innovating using automated scanning to identify security gaps, attacking poorly secured routers or even using ‘deepfakes’ – realistic media content modified or falsified by artificial intelligence. At the same time, data protection and privacy regulation and fines for data breaches continue their upward trend.”
Risers and fallers
Macroeconomic developments is up to number 8 and political risks and violence (number 10) returns to the top 10 for the first time since 2018, reflecting the fact that civil unrest, protests and riots now challenge terrorism as the main exposure for companies. The number, scale and duration of many recent events, including Black Lives Matter protests, anti-lockdown demonstrations and unrest around the US presidential election, have been exceptional. As the socioeconomic fallout from Covid-19 mounts, further political and social unrest is likely, with many countries expected to experience an increase in activity in 2021 and beyond, particularly in Europe and the Americas.
Changes in legislation and regulation drops from number 3 to number 5 year-on-year. “The pandemic may have caused some delays of the regulatory train, but it did not stop or even derail it. Quite the opposite, 2021 promises to become a very busy year in terms of new legislation and regulation, particularly in the areas of data and sustainability,” predicts Ludovic Subran, Chief Economist at Allianz said.
Natural catastrophes fall to number 8 from number 4 in Ghana and globally to number 6 from number 4, reflecting the fact that although aggregated losses from multiple smaller events such as wildfires or tornadoes still led to widespread devastation and considerable insured losses in 2020, it was also the third consecutive year without a single large event, such as Hurricane Harvey in 2017.
Climate change also falls to number 9. However, the need to combat climate change remains as high as ever, given 2020 was the joint hottest year ever recorded. “With the vaccination campaign coming into effect, climate change will be back on the board agenda as a priority in 2021,” says Michael Bruch, Global Head of ESG at AGCS. “Many companies need to adjust their business for a low-carbon world – and risk managers need to be at the forefront of this transition.”