New York– A trio of Covid-19 related risks heads up the 10th Allianz Risk Barometer 2021, reflecting potential disruption and loss scenarios companies are facing in the wake of the coronavirus pandemic.
Business interruption (BI) (#1 with 41% responses) and Pandemic outbreak (#2 with 40%) are this year’s top business risks with Cyber incidents (#3 with 40%) ranking a close third. The annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of 2,769 experts in 92 countries and territories, including CEOs, risk managers, brokers and insurance experts.
“The Allianz Risk Barometer 2021 is clearly dominated by the Covid-19 trio of risks. Business interruption, pandemic and cyber are strongly interlinked, demonstrating the growing vulnerabilities of our highly globalized and connected world,” says Joachim Müller, CEO of AGCS. “The coronavirus pandemic is a reminder that risk management and business continuity management need to further evolve in order to help businesses prepare for, and survive, extreme events. While the pandemic continues to have a firm grip on countries around the world, we also have to ready ourselves for more frequent extreme scenarios, such as a global-scale cloud outage or cyber-attack, natural disasters driven by climate change or even another disease outbreak.”
The Covid-19 crisis continues to represent an immediate threat to both individual safety and businesses, reflecting why pandemic outbreak has rocketed 15 positions up to #2 in the rankings at the expense of other risks. Prior to 2021, it had never finished higher than #16 in 10 years of the Allianz Risk Barometer, a clearly underestimated risk. However, in 2021, it’s the number one risk in 16 countries and among the three biggest risks across all continents and in 35 out of the 38 countries that qualify for a top 10 risks analysis.
Market developments (#4 with 19%) also climbs up the Allianz Risk Barometer 2021, reflecting the risk of rising insolvency rates following the pandemic. Other risers include Macroeconomic developments (#8 with 13%) and Political risks and violence (#10 with 11%), which are, in large part, a consequence of the coronavirus outbreak. Fallers in this year’s survey include Changes in legislation and regulation (#5 with 19%), Natural catastrophes (#6 with 17%), Fire/explosion (#7 with 16%), and Climate change (#9 with 13%), all clearly superseded by pandemic concerns.
In the United States, BI (46%) topped the list followed by Pandemic outbreak (41%) and Cyber incidents (33%).
Pandemic Drives Disruption – Now And In The Future
Prior to the Covid-19 outbreak, BI had already finished at the top of the Allianz Risk Barometer seven times and it returns to the top spot after being replaced by cyber incidents in 2020. The pandemic shows that extreme global-scale BI events are not just theoretical, but a real possibility, causing loss of revenues and disruption to production, operations and supply chains. 59% of respondents highlight the pandemic as the main cause of BI in 2021, followed by Cyber incidents (46%) and Natural catastrophes and Fire and explosion (around 30% each).
The pandemic is adding to the growing list of non-physical damage BI scenarios such as cyber or power blackouts. “The consequences of the pandemic – wider digitalization, more remote working and the growing reliance on technology of businesses and societies – will likely heighten BI risks in coming years,” explains Philip Beblo, expert in AGCS’s global Property underwriting team. “However, traditional physical risks will not disappear and must remain on the risk management agenda. Natural catastrophes, extreme weather or fire remain the main causes of BI for many industries and we continue to see a trend for larger losses over time.”
According to Allianz Risk Barometer respondents, improving business continuity management is the main action companies are taking (62%), followed by developing alternative or multiple suppliers (45%), investing in digital supply chains (32%) and improved supplier selection and auditing (31%).
Cyber Perils Intensify
Cyber incidents may have slipped to #3 but it remains a key peril with more respondents than in 2020 and still ranking as a top three risk in many countries, including Brazil, France, Germany, India, Italy, Japan, South Africa, Spain, UK and the US. The acceleration towards greater digitalization and remote working driven by the pandemic is also further intensifying IT vulnerabilities.
At the peak of the first wave of lockdowns in April 2020, the FBI reported a 300% increase in incidents alone, while cybercrime is now estimated to cost the global economy over $1trn, up 50% from two years ago. Already high in frequency, ransomware incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands, as highlighted in the recent AGCS cyber risk trends report.
Risers And Fallers
Macroeconomic developments is up to #8 and Political risks and violence (#10) returns to the top 10 for the first time since 2018, reflecting the fact that civil unrest, protests and riots now challenge terrorism as the main exposure for companies. The number, scale and duration of many recent events, including Black Lives Matter protests, anti-lockdown demonstrations and unrest around the US presidential election, have been exceptional. As the socioeconomic fallout from Covid-19 mounts, further political and social unrest is likely, with many countries expected to experience an increase in activity in 2021 and beyond, particularly in Europe and the Americas.
Climate change falls to #9. However, the need to combat climate change remains as high as ever, given 2020 was the joint hottest year ever recorded. “With the vaccination campaign coming into effect, climate change will be back on the board agenda as a priority in 2021,” says Michael Bruch, Global Head of ESG at AGCS. “Many companies need to adjust their business for a low-carbon world – and risk managers need to be at the forefront of this transition.”