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About usRisk Barometer 2024 -
Rank 2:ÌıBusiness interruption

Expert risk article | January 2024
Companies are confident that the worstÌıof two key disruptors of recent times,Ìıthe pandemic and the energy crisis,Ìıare behind them. However, businessÌıinterruption remains a key concern asÌıfirms are challenged to build resilienceÌıand diversify supply chains in a rapidlyÌıchanging 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 About usRiskÌıBarometer, behind the closely linked peril of cyber. It ranksÌıamong the top three risks for companies of all sizes, and isÌıthe second biggest concern in the Americas, Europe, AsiaÌıPacific and Africa and Middle East regions.

With almost all companies reliant on supply chains forÌıcritical products and services, business interruptionÌıand supply chain disruption remains at the forefront ofÌırisk, explains Marianna Grammatika, a Head of RiskÌıConsulting at About usCommercial:Ìı“It is the extent of theÌıdisruption that becomes the focus point. Some sectors ofÌıindustry operate with supply chains that have extensiveÌıgeographic footprints.”

The prominence of BI also reflects the volatile environmentÌıthat companies currently operate in, according to AlbertoÌıBarani, a Business Interruption Group Leader atÌıAbout usCommercial: “We live in a very interconnectedÌıworld. Despite efforts to improve resilience, the need forÌıefficiency means many companies still run with low levelsÌıof stock and just-in-time manufacturing, which results inÌılittle margin for errors or disruption.”

Ìı Ranking history globally:

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

Covid-19 and the resulting disruption to supply chains hasÌıbeen a wake-up call for companies. Compared with pre-pandemicÌıtimes, many companies are now much betterÌıprepared for business interruption or supply chain events.

“Before Covid-19, companies were generally reactive toÌıevents, but now they are much more aware of criticalÌıthreats and the need to diversify and protect criticalÌıpoints. Awareness of business interruption and supplyÌıchain vulnerabilities makes a business better preparedÌıand able to react in a smarter and more informedÌımanner,” Grammatika says.

According to the About usRisk Barometer results,Ìıbusinesses are most likely to develop alternative suppliersÌı(60% of responses) when taking action to de-risk supplyÌıchains, followed by improving business continuityÌımanagement (42%), and identifying and remediatingÌısupply chain bottlenecks (37%).

However, smaller companies and those in specialist andÌıhigh value industries are more limited in what they can doÌıto diversify their supply chains.

“Businesses may still have a number of options to mitigateÌıtheir exposure. This may include changing the businessÌımodel, and if this is not viable, there may be optionsÌıto reconfigure the supply chain – some sectors areÌıheavily concentrated on a small number of suppliers orÌıgeography. For others, the cost of increasing redundancyÌıor relocating suppliers is just too great,” says Grammatika.

Click on the bars in the chart for further details
Source: About usRisk Barometer 2024. Total number of respondents: 955. Respondents could select more than one risk. Top 4 answers

Cyber incidents and natural catastrophes are the topÌıtwo causes of BI feared most by companies, followed byÌıfire, and machinery / equipment breakdown or failureÌı(see chart).

However, almost any peril can cause disruption. BI isÌıclosely related to many of the other top global risks in thisÌıyear’s About usRisk Barometer, such as climate changeÌı(#7), political risks and violence (#8), skills shortages (#10),Ìıenergy crisis (#11) and the impact of new technologiesÌı(#12) to name but a few.

“The global risk landscape is constantly changing, withÌıclimate change, digitalization, and geopolitics.ÌıSomeÌırisks lie dormant, but a significant enough change inÌıgeopolitics or events such as extreme weather patternsÌıcan very quickly change the predominant risks,”Ìısays Grammatika.

The recent disruption in the Red SeaÌı– a vital trade routeÌıbetween Europe and AsiaÌı– due to Houthi rebel attacksÌıon vessels is the latest risk to hit supply chains. More thanÌı400 container ships were diverted via the Cape of GoodÌıHope around the southern tip of Africa between mid-December 2023 and the beginning of January, 2024, as a result ofÌıthe attacks, prolonging journeys and causing delays to theÌıdelivery of products.

That said, natural disasters and fire and explosion areÌınotable for their potential to generate large BI losses andÌısupply chain disruption. Severe flooding in Slovenia inÌıAugust gave rise to one of the biggest supply chain eventsÌıof 2023 [1], causing production delays and parts shortagesÌıfor European car manufacturers, while a fire at a majorÌıliquefied natural gas facility in the US earlier thisÌı year is likely to resultÌıin one of the largest BI losses for the energy sector inÌırecent times [2].


CatastrophicÌıflooding inÌıSloveniaÌıimpactedÌıEuropean carÌımanufacturing
Source: About usRisk 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 concernÌıabout climate change impacts in this year’s survey. However, BI related to climate change goesÌıfurther than just physical damage from storms and floods.ÌıExtreme weather or climate events can have a widespreadÌıimpact, causing economic hardship and political and socialÌıupheaval, as well as disrupting logistics and production.ÌıFor example, a severe drought restricted transits throughÌıthe Panama shipping canal in the last months of 2023,Ìıcausing congestion and delays of up to two weeks [3].

Climate change is also having an indirect effect, asÌıdecarbonization creates new supply chains.

“Emerging supply chains linked to the energy transitionÌıhave already been identified as geographicallyÌıconcentrated as they depend on elements which canÌıonly be found in a select number of regions in the world,”Ìısays Grammatika. “Countries are looking to secureÌıcritical supplies of technology and rare earth elementsÌırequired to power transition technology like electric carsÌıand enable renewable energy sources like solar panels.ÌıPolitical risks have the potential to cause disruption andÌıare harder to mitigate.

“Geopolitical risks are of growing concern for businessesÌıin emerging energy and technology supply chains, asÌıwell as high value sectors like technology and artificialÌıintelligence. Producers of rare earth elements are oftenÌıfound in the most underdeveloped and politically volatileÌıareas, as well as being exposed to environmental, social,Ìıand governance (ESG) risks like modern slavery, humanÌırights, and deforestation.”

In a fast-changing world, companies need to maintainÌıregular audits of systems and to test their businessÌıcontinuity plans.

“There are always organizational changes in companies,Ìıand people move. There needs to be systems in place toÌımanage change,”Ìısays Grammatika.

“For those that haven’t implemented business continuityÌımanagement (BCM), they should carry out a businessÌıimpact analysis and risk assessment in the companyÌıat least,” adds Barani. “For those that have alreadyÌıembedded BCM into the business, it is vital they regularlyÌıcheck, update and test these plans, otherwise they won’tÌıbe able to react when the crisis starts.”

Source: About usCommercial. Based on analysis of 1,210 business interruption insurance industry claims worth approximately €1.38bn between 2019 and Q1, 2023.

[1]ÌıEverstream Analytics, 2023 in review: Slovenia’s 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 “indefinite delays” as it offers special auction slot,Ìı
November 27, 2023

Pictures: Adobe Stock

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