Supply Chain Tops List of Increasingly Connected Corporate Risks
Business interruption and supply chain risks remain atop a list of the major hazards drawing companies’ attention this year, according to the recently released Allianz Risk Barometer, a survey of some 400 of the firm’s corporate insurance experts from more than 30 countries. Insurers are starting to pay much more attention to supply chain when underwriting industrial risks, the global insurer says.
Natural disasters like floods and earthquakes are next on the peril list, followed by fire or explosion and regulatory changes, all of which hold the same rankings they did in 2013, according to the January report.
Allianz, however, sees a rise in “interconnected risks” and calls on companies to bolster internal processes and take a holistic approach to fight potentially systemic effects from an “evolving risk landscape.”
Market stagnation or decline rose to fifth and loss of reputation or brand value climbed to sixth on the risk list, outpacing notable but declining concerns over intensified competition. Two new risks appear on the list — technology failures and cyber crimes and espionage at Number 8, and theft, fraud and corruption at Number 9 – while worries over product defects declined to 10th highest concern.
This will be a critical year for companies in dealing with emerging risks, “with businesses around the world increasingly challenged by a combination of new technological, economic and regulatory related risks. These perils are also often interlinked, potentially creating a systemic threat for risk managers,” the report says.
“Identifying the impact of interconnectivity between different risks is a top priority for risk managers. Today’s business continuity plans must prepare for
an increasing range of risk scenarios which need to reflect the sometimes hidden knock-on effects. For example, a natural catastrophe can result in business interruption), systems failure, power blackouts and a host of other perils,” Allianz Global Corporate & Specialty CEO Axel Theis says.
The report notes that a skilled-talent shortage remains a major issue globally, with many companies feeling the impact from cost-cutting measures of recent years. Also, the report says, “a lack of appropriate candidates in the so-called growth markets, combined with an aging workforce around the world, means competition to hire the best is increasingly fierce.”
Supply chain and business interruption risks lead the list for the second straight year, with 43% of respondents rating them among the three most important concerns for companies, down from 46%a year earlier.
“Today’s global supply chains work to an ever tighter set of inter-dependencies, where ‘just-in-time’ and ‘lean manufacturing’ have become standard practices. This evolution, coupled with an increasing trend among companies to source globally and a rise in disruptive natural catastrophes, often in those areas where new supply capacity has been developed, has led to growth in BI and contingent BI,” the report says.
AGCS estimates that business interruption and supply chain-related losses amount to 50% to 70% of insured property catastrophe losses, as much as an estimated $26 billion annually.
Revenue, profits, reputation, market position and share price “all are at risk of crumbling if an organization cannot maintain its supply chain of raw materials or critical component parts. In a global sourcing world, disruption in one part of the world is rarely contained to that area,” AGCS property expert Volker Muench says.
The report notes that as supply chains have become increasingly complex, they’re also at risk from technology outages, transportation disruptions and civil unrest, “and insurers are beginning to put much greater weight on supply chain risks when underwriting large industrial risks,” the report says. “For example, manufacturers are increasingly being caught out by the closure of critical suppliers, a trend which has both insurers and businesses concerned.”
Any company’s procurement and selection process should consider business continuity planning, AGCS’s global head of risk consulting Paul Carter says. Data transparency between clients and insurers to help identify supply chain hotspots will become an increasingly important part of supply chain analysis, he says.
