The unwelcome convergence of cyberattacks, natural catastrophes, and the global COVID-19 pandemic caused unprecedented levels of disruption to businesses and their supply chains in 2021.
Business interruption (BI), including supply chain disruption, ranked in the Allianz Risk Barometer as the second most concerning risk for companies worldwide in 2022, following closely behind cyber incidents, which topped the barometer for only the second time in the survey’s history. This is only the third time in the Allianz Risk Barometer’s 11-year history that BI has not ranked top, reflecting its role as the most feared underlying risk of other dominant threats like cyber, natural catastrophes, and pandemic outbreak.
For businesses, the biggest concern is not being able to produce their products or deliver their services. For many, this concern became a reality in 2021 due to pandemic-related manufacturing problems, transport bottlenecks, and supply chain disruptions.
But it wasn’t just COVID-19 that caused BI issues. The increase in frequency and severity of extreme weather events impeded supply chains worldwide; macroeconomic developments and inflation priced some businesses out of their traditional supply chains; and the global shortage of a skilled workforce left some businesses unable to meet their obligations.
Then there were freak BI events like the blockage of the Suez Canal in March 2021, when one of the world’s largest container ships – the 400-meter, 224,000-ton Ever Given – became grounded in the crucial shipping artery for six days, disrupting critical trade between Europe and Asia. This made businesses worldwide think about the resiliency of their supply chains, and it triggered greater exploration of ideas like onshoring operations and stockpiling inventory.
BI is essentially the risk that connects all risks, explained Thomas Varney (pictured), regional manager of the Americas, Allianz Risk Consulting, a division of Allianz Global Corporate & Specialty (AGCS). He said: “It’s something I always notice when we carry out this survey and publish the Allianz Risk Barometer – the interconnectivity of the risks. A cyber event can interrupt your business; same with a nat cat event or a pandemic outbreak and so on.”
Awareness of BI risks is becoming an important strategic issue across entire companies. According to the Allianz Risk Barometer, there is growing willingness among top management to increase transparency in supply chains and invest in tools to better understand the risks and create contingency plans for business continuity. But figuring out a business’s entire BI exposure is not always easy, according to Varney.
“I think the hard thing about BI is really understanding the actual impact of the overall situation,” he said. “How can the insurance carrier and the business owner, whoever that may be, communicate better about what the real impacts of BI are and how best to cover those? Tackling that requires a case-by-case or insured-by-insured approach with the brokers’ support [so that we can] understand the business operations better and ensure that all potential BI situations or scenarios are fully understood by both sides [the insurer and insured].”
There has been a push in recent years to better understand BI claims, with insurers using data analytics to determine loss trends and then develop models that can illustrate insureds’ potential BI exposures.
“That’s good, but it’s a bit of a rear-view mirror approach,” Varney commented. “Now, the question is: how do we be more proactive and look out the windshield, as opposed to looking in the rear-view mirror? How do we look forward and understand where a business is going, what their operations and processes are, what their BI concerns are, and where insurance plays a part in their resilience?
“That’s what we need to figure out, whether it’s industry-by-industry or account-by-account – and there are tools that could be developed to help with that, to automate it, and to understand all the ‘what if’ scenarios that could come up. Most of that is done through business continuity planning, but as an insurance industry, we need to get better at helping clients understand the big picture.”
