In its 10th year of publication, the global corporate insurance carrier Allianz has incorporated the survey results of 2,769 respondents from 92 countries and territories in their Allianz Risk Barometer 2021 report. The entire survey was conducted among Allianz global customers, brokers and industry trade associations, and included risk consultants, underwriters, senior managers and claims experts from the corporate realm of Allianz entities.
The survey took place in the months of October and November of 2020 and focused on large, small, and mid-sized enterprises, but respondents were asked to select the industry of which they were most knowledgeable, and to name what they believed to be the three most important risks.
Out of the 22 industry sectors featured, the majority of the survey respondents were from large-size enterprises with annual revenue greater than $500 million (1,234 respondents, 44% of results). Small-sized enterprises of less than $250 million revenue contributed 38% of the results from 1,040 respondents; while mid-size enterprises of $250-$500 million had just 495 respondents, comprising 18%.
The top three results, termed the trio of Covid-19 related risks by Allianz, are business interruption, the Covid-19 outbreak, and cyber incidents. The pandemic outbreak had been on previous survey results, but it moved up 15 positions this year. According to Joachim Müller, CEO of AGCS, the Covid-19 trio of risks are interlinked, demonstrating the growing vulnerabilities and uncertainty of our highly globalized and connected world, where actions in one place can spread rapidly to global effects.
The results identified the top 10 most important global business risks for 2021 as follows:
#1 – Business interruption, including supply chain disruption, weighed in at 41% of importance in global survey results, and also ranked #1 (46%) of importance in the U.S. This doesn't come as a surprise, given the coronavirus outbreak and its consequential effects of lost revenue, disruptions in production, operations and supply chains. Business interruption had already been at the top of the Allianz Risk Barometer seven times, having been replaced by cyber in 2020. The consequences of the pandemic is adding to the growing list of non-physical BI scenarios such as cyber or power blackouts. As explained by Philip Beblo, expert in AGCS's global property underwriting team, ""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 pandemic demonstrated just how vulnerable the world is to unpredictable and extreme events and has highlighted the downside of global production and supply chains. When container shipping was effectively grounded in spring 2020, with fleets taking numerous ships out of service in response to capacity shortfalls, global supply chains came under pressure. Subsequently, components failed to arrive and production came to a standstill in many industries, especially in the automotive sector.
Respondents to the survey cited the following main actions companies are taking to counteract this risk: Improving business continuity management (62%), developing alternative or multiple suppliers (45%), investing in digital supply chains (32%), and improving supplier selection and auditing (31%).
#2 – Pandemic outbreak, affecting health and workforce issues and restrictions on movement weighed in close at 40%. In the U.S., it was also ranked #2 (41%) and trending upwards even though it was not even on the list in 2020. The Covid-19 has induced disruption to supply chains and caused other disruptions to business operations. Covid-19 is a reminder that not all perils are insurable, and that risk management and business continuity planning play a critical role in helping businesses survive extreme events.
#3 – Cyber incidents tied with pandemic outbreak at 40% importance, and also ranked #3 (33%) of importance in the U.S. This includes cyber crime, IT failure/outage, data breaches, fines and penalties. According to survey respondents, data breaches and its consequences of higher fines and regulatory costs under the GDPR, and growing third party liability, rank as the primary cyber concern for 2021. This is followed by IT vulnerability due to increased remote working and ransomware attacks, which have been increasing in both number and severity. Almost half a million ransomware incidents were reported globally in 2019 and this trend is set to continue. The highest costs from ransomware incidents is from business interruption and the costs of restoring systems and data. The Covid-19 pandemic is likely to add to cyber concerns given the increasing reliance on technology and online sales; and even the arrival of the vaccine has brought another element of risk with recent attacks against approval authority, the European Medicines Agency, as well as labs handling Covid-19 tests. Regular patching of systems and employee awareness training can help deter attacks, while maintaining secure backups can significantly reduce losses. A dedicated business continuity plan outlining what a company needs to do in event of an attack to minimize disruption can also help.
#4 – Market developments such as volatility, intensified competition, new entrants, M&A, market stagnation and market fluctuations weighed in at 19% importance globally, and ranked #5 (25%) of importance in the U.S.
#5 – Changes in legislation and regulation tied with market developments at 19% importance, but was ranked #6 (14%) of importance in the U.S. This includes trade wars and tariffs, economic sanctions, protectionism, Brexit, Euro-zone disintegration.
#6 – Natural catastrophes, such as storms, flood, earthquakes and wildfires came in at just 17% importance in the global results, but unsurprisingly was ranked at #4 (27%) of the most important business risks in the U.S.
#7 – Fire and explosion weighed in at 16% importance in the global survey, but ranked as #7 (14%) of importance in the U.S. This is not surprising, given the number and size of wildfires that have occurred in the U.S. over the past several years, including the 2020 August Complex Fire and the November 6, 2020 wildfire that burned 1,032,648 acres in the Coast Range of Northern California, in Glenn, Lake, Mendocino, Tehama, Trinity, and Shasta Counties.
#8 – Macroeconomic developments, including monetary policies, austerity programs, commodity price increase, deflation and inflation weighed in at 13% importance globally, but was not included in the top 10 ranking of important business risks in the U.S.
#9 – Climate change/increasing volatility of weather weighed also at 13% importance, but ranked as much higher in importance in the U.S. at #8 (12%).
#10 – Political risks and violence, including political instability, war, terrorism, civil commotion, riots and looting weighed in at 11% importance globally, but not surprisingly it ranked at #9 (12%) in importance in the U.S. Considering this survey only included results from October and November of 2020, it is likely this would have ranked of much higher importance were the survey to take place today.
In the U.S., the #10 ranking of important business risks is a shortage of skilled workforce (11%), due to the departure of aging baby boomers from the workforce.
With respect to the numbers reflected above for the U.S., Allianz also noted in their report that the figures represent how often a risk was selected as a percentage of all responses for that country. The figures do not add up to 100% as up to three risks could be selected by the respondent. There were 360 respondents to the survey from the U.S.