Supply Chain

The Most Pressing Business Risk This Year

It's business interruption, and it can cause enormous financial losses, says Allianz.
Vincent RyanJanuary 22, 2019
The Most Pressing Business Risk This Year

What business risk do executives and insurance industry experts worldwide fear most? For the seventh year in a row, it’s business interruption (BI), according to the 2019 Allianz Risk Barometer for 2019.

Thirty-seven percent of respondents to a survey of 2,415 experts from 86 countries, including CEOs, risk managers, brokers, and insurance experts, chose BI as the top threat for businesses worldwide.

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Said Chris Fischer Hirs, CEO of Allianz global corporate & specialty: “Disruptive risks can be physical, such as fire or storms, or virtual, such as an IT outage, which can occur through malicious and accidental means. They can stem from [a company’s] own operations but also from [its] suppliers, customers, or IT service providers. Whatever the trigger, the financial loss for companies following a standstill can be enormous.”

Posing an increasing global BI threat, according to Volker Muench, a global practice leader at AGCS, are product recall and quality incidents.

pressing business risk“If one product at the beginning of the supply chain is not the correct one it can affect the whole process and the final product. This frequently happens in the automotive industry, for example,” he said.

Political risk and violence are also happening more often than in the past, said Muench. The indirect impact of such incidents can result in BI and loss of income either from production having to be halted or customers staying away from affected areas.

Rioting and protesting in France during November and December 2018 was costly. The French retail federation told Reuters that retailers have lost about €1bn ($1.1bn) since the protests first began on November 17.

One often overlooked BI exposure is when companies experience environmental issues such as pollution at manufacturing sites, on residential real estate, or through pipeline spills. Expenses and supply chain disruption can quickly grow as a result of lengthy remediation, reconstruction, and delays during which firms may be unable to operate or provide products or services, Allianz said.

More and more, though, business interruptions are caused by cyber incidents. They rank as the top trigger of BI, followed by fire and natural catastrophes, the survey found.

“As all businesses embrace digital business models, success is highly dependent on the technology facilitating the business,” explains Georgi Pachov, a practice leader at AGCS. 

“Revenue streams can be easily interrupted following abnormal technological behavior. Cyber incidents leading to BI will become much more frequent in [the] future due to the massive reliance on technology and data for running businesses.”

The WannaCry and NotPetya malware attacks in 2017, for example, caused large losses for a number of shipping, logistic, and manufacturing companies. Taiwan Semiconductor Manufacturing Company, a key supplier to Apple, lost over a day of production after a virus infected machinery at plants in Taiwan in August 2018. And the ports of Barcelona and San Diego were both victims to ransomware attacks that impacted servers and administrative systems in September 2018.

As far as emerging risks, climate change and a shortage of skilled workers climbed the list of global risks in this year’s Allianz survey. Climate change can be a harbinger of increasing losses and disruption from extreme weather events and natural catastrophes. In addition, new regulations, including stricter emission targets and reporting and disclosure requirements, pose risks for companies that are slow to adopt environment-friendly policies and practices.

Image: Getty

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