The top 10 global risks facing businesses in 2021
Business Interruption has taken the top spot as the most critical business risk of 2021 in Allianz's latest Risk Barometer report. It's one of the three risks classed as the "COVID trio", alongside pandemic outbreak and cyber incidents, which ranked second and third.
While the Covid-19 outbreak largely impacted 2020, several other risks have made the global top 10 list this year, which are likely to have a sizeable impact on businesses worldwide.
1. Business Interruption
Business Interruption is no stranger to the report. Even before the pandemic, it had finished at the top of the list seven times in the last decade.
COVID-19 was the first extreme event to hit our modern globalised economy, with widespread disruption and significant financial loss across geographical locations and markets. Even the most prepared businesses were caught off guard by the pandemic's size, scope, and duration.
In 2021, building greater resilience in supply chains and business models will prove critical in ensuring businesses are prepared to manage future complex exposures. Businesses are being encouraged to review and test their business continuity plans, including business impact analysis, supply chain analysis, crisis management, emergency preparedness and disaster recovery.
2. Pandemic Outbreak
Having an interconnected world does have its benefits - international travel, shared technology, increased economic exchange, competitively priced goods, access to new markets and talent - the list goes on.
However, there is no denying that globalisation does have its disadvantages and that with this increased connectivity also comes greater risk. During COVID-19, we saw how one country's actions set into motion a devastating ripple effect across international borders, significantly impacting not only the health of populations but global production and supply chains as well. For this reason, pandemic outbreak now ranks at number two in the report - up 15 places from last year.
COVID-19 has shown us just how vulnerable we are to unpredictable and extreme events. To achieve operational resilience in future, businesses are encouraged to reconsider their business continuity management and de-risk supply chains. This could include developing alternative/multiple suppliers, investing in digital supply chains, auditing regularly, and inventory/safety stock management.
3. Cyber Incidents
Business Interruption from a cyber incident is becoming increasingly significant due to the acceleration of digitalisation post-COVID-19.
According to the report, data breaches are the top cause of cyber incidents affecting businesses globally, followed by external events such as ransomware attacks and employee error.
As technology advances and more businesses move online, its is becoming increasingly important that companies take proactive steps to minimise their cyber risk. Having a dedicated continuity plan is a great place to start so that your business knows what to do in the event of a cyber incident. Regular patching, cyber awareness training for staff, secure backups, and security investment can help minimise disruption and loss from a cyber incident.
4. Market Developments
According to the report, 2021 is set to be a record year for business insolvency. One of the major factors fueling this concern is the gradual phasing out of temporary policy measures, such as JobKeeper in Australia, designed to support businesses through the peak of the pandemic financially. It is feared that removing these payments will take a toll not only on the businesses that rely on them but also on the economy.
But while this seems rather grim, the pandemic is also predicted to jumpstart a period of innovation. We are likely to see some market disruption with a shift away from traditional sectors and a rise in new competitors' opportunities. Businesses are also expecting to see the acceleration towards greater digitalisation and an increase in remote working.
5. Changes in Legislation and Regulation
There are two areas of change likely to have the most significant impact on businesses globally - access and use of data and sustainability.
New regulations and standards in areas such as artificial intelligence frameworks and cybersecurity, digital finance and digital services and platforms are also expected to rise this year.
A certain degree of regulation is also needed to help our global economy successfully transition to zero-carbon emissions. On a business level, considering sustainability and incorporating it into all business activities moving forward with be vital in achieveing this.
6. Natural Catastrophes
Last year's pandemic outbreak may have been the most apparent cause of disruption; however, natural catastrophes, extreme weather, and fire remain the leading causes of business interruption for many industries. They are also the biggest risk exposure for both manufacturing and industrial businesses.
There were more than 200 natural disasters experienced globally in the first half of 2020 alone. In Australia, the 2019/20 bushfire season was unprecedented in its extent and intensity, burning through over 46 million acres of land and causing damage to countless homes and buildings. The global insured losses from natural disasters in 2020 were around around $80bn, up more than 40% from the previous year.
With the regularity of these catastrophic weather events occuring globally, it will be crucial that businesses have a plan in place to help manage any associated risks and minimise losses.
7. Fire, Explosion
With an incident such as fire or explosion, it is not always the direct material damage to property that results in the most considerable losses for businesses. These incidents can prevent businesses from reaching their customers or resuming their daily operations for extended periods. Therefore, fire remains one of the leading causes of business interruption claims.
It is a good idea for businesses to review their fire mitigation practices and ensure all risk management plans are shared with any employers, partners, contractors, clients, and neighbours from other businesses.
8. Macroeconomic Development
In the short term, the global economic outlook is looking better than intially anticipated. According to the report, global GDP is likely to lift by +4.4% in 2021, compared to the expected contraction of -4.5% in 2020.
However, this is conditional, highly dependent on the successful deployment of effective COVID-19 vaccines and ongoing fiscal, financial, and monetary measures. The staggering $277trn of global debt will also influence economic growth potential for both individual and global economies.
9. Climate Change / Increasing volatility of weather
Our global climate is changing and will continue to change in ways that will influence the planning, operational and investment decisions of businesses, government agencies and other organisations.
The most significant threat climate change creates for businesses is the physical loss impact on business property and assets due to extreme weather catastrophes. But it is also the impact on supply chains, customers, and communities that is of equal importance.
In 2021, we are seeing a strong push for climate change to be back on the global priority list. Policy changes, new taxing regimes, reporting requirements and sustainablity metrics are to be expected. Rising regulatory and legal risk associated with climate change is also likely to impact businesses, particularly those in high carbon-emitting sectors.
So, what can businesses do? Identifying company-specific climate risks and opportunities is a great first step and will help businesses build a resilient climate strategy. This will also help to ensure that businesses are committed to making appropriate adjustments to their current strategy and business models.
10. Political Risks and Violence
Political risks and violence have returned to the top 10 for the first time since 2018. This means that civil unrest now overshadows terrorism as the main political threat to businesses.
In the last year, we have seen many anti-lockdown demonstrations turn violent in several western countries and a rise in protests and racially charged riots in support of the Black Lives Matter movement. It is expected that more than 70 countries will likely experience an increase in protests over the next two years.
Businesses do not have to be directly impacted by civil unrest or terrorism to suffer financial loss. If the surrounding area is closed off or under repair, this can mean access is restricted for customers, business owners, and suppliers for an extended period. Revenue can take a significant hit until normall operations can be resumed.
How Coverforce can help
At Coverforce, our expert team of brokers are here to help protect the financial future of your business. For personalised risk advice and tailored, cost-effective insurance solutions for your business, contact your local Coverforce office or call 1 3000 COVER.
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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