Adapting to a Changing Landscape: Top Business Risks for 2023
Allianz has released its latest Risk Barometer Report for 2023, which draws on the insights of 2,769 risk management experts from 92 countries and analyses the most significant risks facing businesses globally in the next year.
Cyber incidents have ranked as the most critical business risk globally for the second consecutive year. This is no surprise considering today's digital economy, evolving threat from ransomware and cyber-attacks increasingly used during geopolitical conflicts.
For Australian respondents, Natural Catastrophes are the risk factor of most concern, driven by events such as flooding, which resulted in the country's costliest-ever extreme weather event in 2022.
Despite positive steps taken by businesses and governments to build resilience and diversify their supply chains following the pandemic, the report indicates that elevated levels of business disruption are likely to continue well into 2023.
Top Global Business Risks
1. Cyber Incidents
Accelerated digitisation of supply chains and growing reliance on digital infrastructure has seen an increase in cyberattacks in the last few years. Cybercrime incidents are now estimated to cost the global economy more than $1trn a year.
According to the report, over a third of all respondents indicated cyber as their biggest concern for the coming year, with risks including IT outages, ransomware attacks and data breaches among what businesses feared most.
Investing in cybersecurity measures and raising protection levels is the best way for businesses to protect themselves against cybercrime. Regular patching, cyber awareness training for staff, secure backups and cyber insurance are also effective in helping minimise disruption and loss from a cyber incident.
2. Business Interruption
High energy costs have led to temporary production cuts in energy-intensive industries, causing supply chain disruptions across critical sectors such as food, agriculture, chemical, pharmaceuticals, construction, and manufacturing.
The conflict in Ukraine has also added further pressure to already strained supply chains. Financial market volatility is expected to persist in 2023 due to high inflation and the energy crisis in Europe, resulting in a cost-of-living crisis and the threat of recession, causing uncertainty for businesses.
Taking proactive steps such as improving business continuity management, diversifying supply chains, intensifying supplier selection, and investing in technological infrastructure to support remote work can help businesses remain operational during an interruption.
3. Macroeconomic Developments
Macroeconomic Developments has jumped to a top three risk ranking for the first time since 2012. High inflation, together with the energy crisis, trade tensions and the ongoing impacts of the pandemic, have resulted in the cost of living soaring and the threat of a recession.
Despite three major economies - US, China, and Europe - facing an economic crisis, Australia has had a comparatively strong rebound post-pandemic. We are, however, experiencing an inflation rate currently at its highest in over a decade, causing a significant increase in the cost of living for Australians.
4. Energy Crisis
Spiralling fuel costs, supply disruptions, inflation, and the effects of Russia's invasion of Ukraine have seen Energy Crisis rank in the top 10 global risks for the first time.
As Europe's energy demands rise due to the crisis, it could lead to a decrease in available energy resources and a subsequent price increase. As a result, Australian businesses could experience a knock-on effect on the cost of production and supply chain disruptions.
5. Changes in Legislation and Regulation
The rapidly changing regulatory environment, driven by increasing trade barriers, climate change policies, and rising geopolitical tensions, is placing significant pressure on businesses. These pressures include increased compliance costs, decreased competitiveness, and reputational damage due to non-compliance.
Businesses, particularly those in highly regulated industries such as finance, healthcare, and energy, need to ensure they have contingency plans to adapt to new regulations as they are implemented.
6. Natural Catastrophes
Despite Natural Catastrophes falling three positions from last year, extreme weather in 2022 showed single events continue to cause losses in the billions of dollars and are still a concern for businesses.
Hurricane Ian, which struck Florida in September, was the year's costliest natural catastrophe event. Other notable events include widespread flooding across South Asia, record-breaking hailstorms in France and the devastating heatwaves suffered by Europe and China.
As mentioned earlier in this article, Australia places this risk factor at number one following a series of recent weather events including insured losses of around $4bn in the country's costliest-ever natural catastrophe, the East Australian floods.
7. Climate Change
Climate change is still a key concern for businesses globally. Extreme weather events, such as floods, storms, and droughts, can pose a significant risk of property damage and business interruption. Businesses are also exposed to legal and liability risks due to regulatory frameworks, increasing disclosure requirements, new market conditions and product requirements.
Despite these challenges, many companies continue to take action to combat the direct impact of climate change by adopting carbon-reducing business models, developing dedicated risk management strategies for climate risks, and creating a contingency plan for climate change.
8. Shortage of Skilled Workforce
Even before Covid-19, the labour market was under pressure. Now with rising wage inflation, and an increase in early retirements, many countries are experiencing a reduction in the available workforce at a time of high demand for labour.
Report respondents have ranked talent shortages as a top 5 business risk in several sectors, including aviation, engineering, construction, and professional services. This shortage can significantly impact businesses, including reduced productivity, increased labour costs, and potential project delays.
9. Fire and Explosion
Fire remains a significant cause of business interruption (BI) and supply chain disruption. These incidents can prevent a business from reaching customers or resuming its daily operations for extended periods.
It is crucial for businesses to regularly assess and improve their fire prevention practices, including preventative measures, fire extinguishing methods and contingency plans to help lower the risk of loss from an incident.
10. Political Risks and Violence
2022 was another year of global instability, with rising conflict and civil unrest. The invasion of Ukraine by Russia intensified the risk landscape as well as unrest and protests in several countries, including Iran, Sri Lanka, the US, China and Europe.
This will likely continue in 2023, particularly in those countries with wide financial discrepancies and grievances around specific events and long-standing systemic injustice.
Top Risks for Australian Businesses
The report identifies Natural Catastrophes, Business Interruption and Climate change as the three biggest risks facing Australian businesses in the next 12 months.
Report respondents are particularly concerned about the increased frequency and severity of natural disasters such as floods and bushfires as well as the physical, operational, and financial risks that come with global warming.
More frequent natural disasters can cause significant property damage, business interruption, and supply chain disruptions, resulting in financial losses for businesses. Climate change has also led to changes in consumer behaviour, with increased demand for sustainable and environmentally friendly products and services. This has prompted many businesses to adapt their operations to reduce their carbon footprint and meet changing consumer demands.
To help mitigate these risks, businesses need to prioritise risk management strategies and ensure they have adequate insurance cover in place to minimise losses. Property or Business Interruption Insurance can help provide financial support for repairs and lost income during periods of closure.
How Coverforce can help
The business risk landscape is constantly evolving, and 2023 will be no exception. Help protect the financial future of your business by ensuring you have the right insurance cover.
Our team of experienced brokers are here to provide personalised risk advice and highly competitive insurance solutions tailored to your business needs and budget. Contact your local Coverforce Office or call 1 3000 COVER today.
The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Coverforce directly.
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