The 3 Most Important Global Corporate Risks in 2022: Part II

In Part I of this blog, we reviewed Cyber Incidents, the top business risk in 2022, according to the 11th annual Allianz Risk Barometer 2022.  Given the unprecedented global disruption that took place in 2021 and the increasing amount of cyber attacks, cyber risk is currently the biggest cause of business interruption. In Part II, we dive deeper into business interruption, discuss the consequences, and explore how the digital pandemic will affect businesses around the world in 2022.

Business Interruption

In this year’s Allianz Risk Barometer 2022, Business interruption (BI) is the second most concerning business risk for businesses in 2022. This is only the second time in the survey’s history, that cyber incidents rank as more of a concern than business interruptions. Experts strongly believe that business interruption is going to continue to challenge businesses around the world, and has the most “feared” consequences from other threats/risks such as cyber, pandemic outbreak, and natural catastrophes.  

Philip Beblo, Property Industry Lead, Technology, Media and Telecoms at AGCS, acknowledges “business interruption events can have a very costly and long-lasting impact that can extend well beyond an individual organization.” After last year’s fiasco of business interruption from the Covid-19 pandemic, extreme weather storms, cyber attacks, and supply chain disruption, it makes a great deal of sense why survey respondents ranked business interruption second. The Allianz Risk Barometer 2022 survey highlights the unprecedented supply chain disruption and the impact it has had on businesses globally during the past 12 months.

Throughout 2021 and into 2022, supply chain disruption continues to negatively impact companies globally with major changes to production, labor shortages and even closures. Simultaneously, supply chain disruptions also arose from unrelated factors, like the blockage of the Suez Canal. Businesses are certainly aware of the “fragility and complexity of modern supply chains” and the interconnectivity along with multiple events can and will cause long-lasting global disruption.

This was shown this past year with the pandemic surge in car sales, supply constraints due to Winter Storm Uri and the drought in Taiwan, and the global shortage of semiconductors. According to this survey, the global shortage in semiconductors is predicted to cost the automotive sector alone $210 billion dollars in lost revenues. Many businesses, such as dealerships, were pushed to their breaking points with business interruption and it is likely that it will take years to fix.

Essentially, last year’s unforeseen events have encouraged companies to start planning ahead for causes of business interruption likely to continue in the future. Businesses should be rethinking their supply chain structures, reliance on suppliers, and third-party risk management. AGCS shares that they see clients missing detail in their mapping of supply chain risk and Philip Beblo, Property Industry Lead, Technology, Media and Telecoms at AGCS, states that “it is critical to understand the value chain and identify the most important exposures in order to mitigate the risks and create solutions to transfer or reduce the risk.”

Many businesses have already made improvements to their supply chain resilience by increasing inventory of critical products and supplier base, backup production sites, nearshoring, and by implementing formal supply chain risk management processes. Many businesses are even using building resilience as a competitive advantage, compared to other companies that have not made any changes. As businesses continue to improve and prepare for BI, the good news is that supply chain disruption is expected to slow down in the second half of 2022, Covid-19 permitting, according to the Allianz Barometer 2022 survey.

Natural Catastrophes

According to Swiss Re, 2021 is the fourth-highest year of losses from natural catastrophes since 1970, with survey respondents ranking these events as the third most concerning business risk for 2022. Last year’s estimated annual insured losses from global natural catastrophes is around $105 billion dollars.

RMS reports that 2021’s most catastrophic natural disaster, Hurricane Ida, will cost the most insured damages estimated at $31-44 billion dollars. The Allianz Barometer 2022 survey reported that Hurricane Ida is the “sixth- costliest tropical cyclone ever and the fourth- costliest Atlantic hurricane in the US, occurring in the sixth consecutive above-normal Atlantic hurricane season.”

Some of the natural catastrophes that affected businesses globally during the past 12 months in 2021 include Winter Storm Uri, the December tornadoes destroying six US states, the South Moravia tornado in the Czech Republic, flooding in Germany, Belgium, the Netherlands, and central China, and the outrageous temperatures and wildfires in Canada.

The devastating losses that have occurred as a result are being discussed around the globe, along with climate change. ACGS believes that climate change has an impact on natural catastrophes.

“The upwards trend for natural catastrophes in the Allianz Barometer 2022 is closely related to the rise of climate change [which rises up to sixth position],” says Dr Hannes Roemer, Expert Cat Risk Analyst, Catastrophe Risk Management, at AGCS. “This connection can be seen in responses to the survey question on climate change, where ‘physical loss impact – e.g. higher property damages due to the volatility of weather is the number-one impact respondents say their industry already faces.”

The goal for businesses and insurers is to become more resilient against natural catastrophes and extreme weather events and they are advised to expand their business continuity planning (BCP). BCP is very helpful and specifically helps companies recover and return to normal operations asap. To ensure better business resilience, the main action businesses are making is improving and initiating BCP.

Where did the Pandemic rank?

While the Pandemic didn’t make the Top 3 in 2022, it was the next top risk according to the survey. It’s important to note not only for its prominence in the survey but for the collateral risk it has caused to the supply chain and workforce.

Businesses were greatly impacted by the Covid-19 pandemic in 2021 and businesses will continue to combat staff shortages and supply chain disruption in the first few months of 2022. Ironically, pandemic risk is ranked as the fourth most concerning business risk in 2022, dropping two positions in this year’s rankings. In fact, 80% of businesses believe they are adequately or well prepared for a future pandemic incident.

“We are already seeing big changes in working practices and business models, many of which are here to stay, and that will shape business interruption and other exposures going forward. There will be challenges for cyber security and IT capacity as moves to digitalization and remote working are scaled up. But there will also be opportunities, such as more flexible ways of working and access to more data with which to manage risk,” says Philip Beblo, Property Industry Lead, Technology, Media and Telecoms at AGCS.

The pandemic taught businesses many important lessons including the importance of focusing on businesses as a whole, not just the causes of business interruptionand the importance of people for business continuity. According to a ManpowerGroup survey, Covid-19 was very disruptive to the labor market and 69% of companies globally report talent shortages, the highest in 15 years. “Shortage of skilled workforce” ranked ninth by this year’s 11th Allianz Barometer 2022 survey respondents, as a concerning business risk for the next 12 months. Korn Ferry estimates that by 2030 the global talent shortage could continue to increase by well over 85 million people and companies will have lost trillions of dollars.

As a result of the pandemic, businesses everywhere have been impacted by several changes, including the exponential growth in digital platforms and IT infrastructure, as seen below in the chart released by the Allianz Barometer 2022.

Although it seems as if Covid-19 variants have decreased recently, we must continue to stay vigilant on the top risks into the second half of 2022. Businesses around the world are prioritizing business continuity planning and learning how to “become more weatherproof” since natural catastrophes are happening at a greater rate than ever. If the series of devastating events in 2021 that took a toll on business globally taught us one thing, it is that businesses, across industries, need to be better prepared for risks and plan accordingly.

How has your hospital or health system changed its risk management program over the last year? Do you have business continuity plans in place today? Send me a note.

Ed Gaudet
CEO and Founder, Censinet