Supply Chain News / Risk & Compliance

Business Interruption & NatCats Top List of 2014 Risks

Business interruption (BI) and supply chain, natural catastrophes (NatCats) and fire/explosion top the list of company risks in 2014, according to the third annual Allianz Risk Barometer, which surveyed over 400 corporate insurance experts from 33 countries.

The survey conducted by Allianz Global Corporate & Specialty SE (AGCS) highlights the increasing complexity of business risks, including a combination of new technological-, economic- and regulatory-related risks, potentially creating a systemic threat for businesses. Allianz suggests that companies can respond to these growing challenges through stronger internal controls, combined with a holistic approach to risk management.

“Companies are increasingly concerned about the interconnectivity between different risks and their business continuity plans need to account for an escalating variety of risk scenarios, including the sometimes hidden incidental effects,” commented Hugh Burgess, CEO of Allianz Global Corporate & Specialty North America. “For example, a natural catastrophe such as Superstorm Sandy in 2012 resulted in wind damage, power outages, and IT-system failures that in turn led to substantial business interruptions.”

Top Two Risks Generate Highest Losses

Business interruption and supply chain losses represent the number one concern for businesses around the globe, including in the U.S. where 61 percent of participants identified them as the top business risk in 2014. These risks account for around 50-70 percent of all insured property losses, as much as $26 billion a year based on 2013 data.

“Businesses in the U.S. are discovering that supply chains are becoming increasingly complex in a globalized world. Any disruption — be it due to natural catastrophes, IT/telecommunication outages, transportation issues, a supplier’s bankruptcy or civil unrest — may lead to a snowball effect that can be devastating to their bottom line,” advises Tom Varney, Regional Manager for Allianz Risk Consulting in the Americas.

“Business continuity planning is critical and should be part of any risk manager’s supplier selection process,” continues Varney. “However, it is no longer enough to have transparency of your most important suppliers; you also need to know how they manage their own supply chains.”

While BI remains the biggest threat globally for large corporations, mid-sized companies are more concerned about fire and explosion, the impact of austerity measures and credit availability.

Even more costly than BI damages, insured losses from the second top risk, natural catastrophes, totaled about $38 billion in 2013, despite 2013 being a quiet NatCat year in the United States. A year earlier, due to a more damaging Atlantic hurricane season, NatCat losses reached $75 billion.

In the United States, natural catastrophes ranked second as a business risk in 2014 at 58 percent followed by fire at 24 percent. Loss of reputation or brand value ranks as one of the top ten risks for the first time in 2014 as the fourth most frequently cited business risk for U.S. companies. Rounding out the top five risks in the U.S. is cyber-crime, which also includes IT failures and espionage.

Cyber and Other Interlinked Emerging Risks on the Forefront

According to Allianz experts, heightened risk awareness in 2014 is around cyber and loss of reputation issues. Cyber is the biggest mover in this year’s Global Risk Barometer climbing up to rank 8, while reputation moved up to rank 6 globally.

Many of the top 10 risks in the Barometer are closely interconnected with a potential cumulative effect, particularly changes in legislation, cyber risk and loss of reputation.

The increasingly interconnected risk environment also requires enhanced skills for corporations as well as their insurers. Concern regarding talent shortages is viewed as a growing risk globally, and most notably in emerging economies.

According to Hugh Burgess, “Developing talent through selective recruitment and ongoing training is a top priority for Allianz. Our engineers, underwriters and claims specialists have deep expertise in our specialized fields of marine, energy, aviation, property & casualty and construction.”

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