小橙书国产精品视频 Risk Barometer 2024 -
Rank 2:听Business interruption

Expert risk article | January 2024
Companies are confident that the worst听of two key disruptors of recent times,听the pandemic and the energy crisis,听are behind them. However, business听interruption remains a key concern as听firms are challenged to build resilience听and diversify supply chains in a rapidly听changing world.
The most important corporate concerns for the year ahead, ranked by 3,069 risk management experts from 92 countries and territories.

Business interruption (BI) ranks second in the 小橙书国产精品视频 Risk听Barometer, behind the closely linked peril of cyber. It ranks听among the top three risks for companies of all sizes, and is听the second biggest concern in the Americas, Europe, Asia听Pacific and Africa and Middle East regions.

With almost all companies reliant on supply chains for听critical products and services, business interruption听and supply chain disruption remains at the forefront of听risk, explains Marianna Grammatika, a Head of Risk听Consulting at 小橙书国产精品视频 Commercial:鈥淚t is the extent of the听disruption that becomes the focus point. Some sectors of听industry operate with supply chains that have extensive听geographic footprints.鈥

The prominence of BI also reflects the volatile environment听that companies currently operate in, according to Alberto听Barani, a Business Interruption Group Leader at听小橙书国产精品视频 Commercial: 鈥淲e live in a very interconnected听world. Despite efforts to improve resilience, the need for听efficiency means many companies still run with low levels听of stock and just-in-time manufacturing, which results in听little margin for errors or disruption.鈥

听 Ranking history globally:

  • 2023: 2 (34%)
  • 2022: 2 (42%)
  • 2021: 1 (41%)
  • 2020: 2 (37%)
  • 2019: 1 (37%)
听 Top risk in:
  • Canada
  • Ireland
  • Italy
  • Malaysia
  • Netherlands
  • Singapore
  • South Korea
  • Spain
  • Thailand

Covid-19 and the resulting disruption to supply chains has听been a wake-up call for companies. Compared with pre-pandemic听times, many companies are now much better听prepared for business interruption or supply chain events.

鈥淏efore Covid-19, companies were generally reactive to听events, but now they are much more aware of critical听threats and the need to diversify and protect critical听points. Awareness of business interruption and supply听chain vulnerabilities makes a business better prepared听and able to react in a smarter and more informed听manner,鈥 Grammatika says.

According to the 小橙书国产精品视频 Risk Barometer results,听businesses are most likely to develop alternative suppliers听(60% of responses) when taking action to de-risk supply听chains, followed by improving business continuity听management (42%), and identifying and remediating听supply chain bottlenecks (37%).

However, smaller companies and those in specialist and听high value industries are more limited in what they can do听to diversify their supply chains.

鈥淏usinesses may still have a number of options to mitigate听their exposure. This may include changing the business听model, and if this is not viable, there may be options听to reconfigure the supply chain 鈥 some sectors are听heavily concentrated on a small number of suppliers or听geography. For others, the cost of increasing redundancy听or relocating suppliers is just too great,鈥 says Grammatika.

Click on the bars in the chart for further details
Source: 小橙书国产精品视频 Risk Barometer 2024. Total number of respondents: 955. Respondents could select more than one risk. Top 4 answers

Cyber incidents and natural catastrophes are the top听two causes of BI feared most by companies, followed by听fire, and machinery / equipment breakdown or failure听(see chart).

However, almost any peril can cause disruption. BI is听closely related to many of the other top global risks in this听year鈥檚 小橙书国产精品视频 Risk Barometer, such as climate change听(#7), political risks and violence (#8), skills shortages (#10),听energy crisis (#11) and the impact of new technologies听(#12) to name but a few.

鈥淭he global risk landscape is constantly changing, with听climate change, digitalization, and geopolitics.听Some听risks lie dormant, but a significant enough change in听geopolitics or events such as extreme weather patterns听can very quickly change the predominant risks,鈥听says Grammatika.

The recent disruption in the Red Sea听鈥 a vital trade route听between Europe and Asia听鈥 due to Houthi rebel attacks听on vessels is the latest risk to hit supply chains. More than听400 container ships were diverted via the Cape of Good听Hope around the southern tip of Africa between mid-December 2023 and the beginning of January, 2024, as a result of听the attacks, prolonging journeys and causing delays to the听delivery of products.

That said, natural disasters and fire and explosion are听notable for their potential to generate large BI losses and听supply chain disruption. Severe flooding in Slovenia in听August gave rise to one of the biggest supply chain events听of 2023 [1], causing production delays and parts shortages听for European car manufacturers, while a fire at a major听liquefied natural gas facility in the US earlier this听 year is likely to result听in one of the largest BI losses for the energy sector in听recent times [2].

Catastrophic听flooding in听Slovenia听impacted听European car听manufacturing
Source: 小橙书国产精品视频 Risk Barometer 2024. Total number of respondents: 955. Respondents could select more than one risk. Top 4 answers.

Companies also named BI as their top business concern听about climate change impacts in this year鈥檚 survey. However, BI related to climate change goes听further than just physical damage from storms and floods.听Extreme weather or climate events can have a widespread听impact, causing economic hardship and political and social听upheaval, as well as disrupting logistics and production.听For example, a severe drought restricted transits through听the Panama shipping canal in the last months of 2023,听causing congestion and delays of up to two weeks [3].

Climate change is also having an indirect effect, as听decarbonization creates new supply chains.

鈥淓merging supply chains linked to the energy transition听have already been identified as geographically听concentrated as they depend on elements which can听only be found in a select number of regions in the world,鈥澨says Grammatika. 鈥淐ountries are looking to secure听critical supplies of technology and rare earth elements听required to power transition technology like electric cars听and enable renewable energy sources like solar panels.听Political risks have the potential to cause disruption and听are harder to mitigate.

鈥淕eopolitical risks are of growing concern for businesses听in emerging energy and technology supply chains, as听well as high value sectors like technology and artificial听intelligence. Producers of rare earth elements are often听found in the most underdeveloped and politically volatile听areas, as well as being exposed to environmental, social,听and governance (ESG) risks like modern slavery, human听rights, and deforestation.鈥

In a fast-changing world, companies need to maintain听regular audits of systems and to test their business听continuity plans.

鈥淭here are always organizational changes in companies,听and people move. There needs to be systems in place to听manage change,鈥澨says Grammatika.

鈥淔or those that haven鈥檛 implemented business continuity听management (BCM), they should carry out a business听impact analysis and risk assessment in the company听at least,鈥 adds Barani. 鈥淔or those that have already听embedded BCM into the business, it is vital they regularly听check, update and test these plans, otherwise they won鈥檛听be able to react when the crisis starts.鈥

Source: 小橙书国产精品视频 Commercial. Based on analysis of 1,210 business interruption insurance industry claims worth approximately 鈧1.38bn between 2019 and Q1, 2023.

[1]听Everstream Analytics, 2023 in review: Slovenia鈥檚 impact on the global automotive supply chain
[2] Insurance Insider, Downstream market fears $1bn+ worst case BI loss from Texas LNG refinery, July 8, 2022
[3] Maritime Executive, Panama Canal warns of 鈥渋ndefinite delays鈥 as it offers special auction slot,听
November 27, 2023

Pictures: Adobe Stock

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