There was no escaping the coronavirus in 2020 and the pandemic will dominate the risk landscape again in 2021, according to global leaders in business, risk management and insurance.
A trio of Covid-19 related risks -- business interruption, the pandemic outbreak and cyber incidents-- 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 (#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 barometer identifies the top corporate risks for the next 12 months and beyond.
"Business interruption, pandemic and cyber are strongly interlinked, demonstrating the growing vulnerabilities of our highly globalized and connected world," said AGCS CEO Joachim Muller. "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."
He said that while the pandemic continues to have a firm grip on countries around the world, businesses also have to prepare 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."
'Business interruption, pandemic and cyber are strongly interlinked, demonstrating the growing vulnerabilities of our highly globalized and connected world.'
The Covid-19 crisis continues to represent an immediate threat to both individual safety and businesses, which explains why pandemic outbreak 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. 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 which qualify for a top 10 risks analysis. Japan, South Korea and Ghana are the only exceptions.
The risk of rising insolvency rates is reflected in market developments (#4 with 19%) climbing up the barometer in 2021. According to Euler Hermes, the bulk of insolvencies will come in 2021. The trade credit insurer's global insolvency index is expected to hit a record high for bankruptcies, up 35% by the end of 2021, with top increases expected in the U.S., Brazil, China and core European countries.
Further, Covid-19 will likely spark a period of innovation and market disruption, accelerating the adoption of technology, hastening the demise of incumbents and traditional sectors and giving rise to new competitors.
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 too.
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.
Pandemic Drives Disruption - Now and in Future
Prior to the Covid-19 outbreak, business interruption (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," said 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."
In response to heightened BI vulnerabilities, many companies are aiming to build more resilient operations and to de-risk their supply chains. 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%). According to AGCS, many companies found their plans were quickly overwhelmed by the pace of the pandemic.
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 U.S. The acceleration toward 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 cyber crime is now estimated to cost the global economy more than $1 trillion, up 50% from two years ago. Already high in frequency, ransomware incidents are becoming more damaging.
Covid-19 has shown how cybercriminals are able to adapt and how the pandemic has created opportunities for intrusions.
"Attackers are innovating using automated scanning to identify security gaps, attacking poorly secured routers or even using 'deepfakes' - realistic media content modified or falsified by artificial intelligence," said Catharina Richter, global head of the Allianz Cyber Center of Competence at AGCS. "At the same time, data protection and privacy regulation and fines for data breaches continue their upward trend."
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 recent events, including Black Lives Matter protests, anti-lockdown demonstrations and unrest around the U.S. 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, according to AGCS analysts.
Legislation and Regulation
Changes in legislation and regulation drops from #3 to #5 year-on-year. "The pandemic may have caused some delays of the regulatory train, but it did not stop or even derail it. Quite the opposite, 2021 promises to become a very busy year in terms of new legislation and regulation, particularly in the areas of data and sustainability," predicts Ludovic Subran, chief economist at Allianz. Natural catastrophes falls to #6 from #4, reflecting the fact that although aggregated losses from multiple smaller events such as wildfires or tornadoes still led to widespread devastation and considerable insured losses in 2020, it was also the third consecutive year without a single large event, such as Hurricane Harvey in 2017.
Climate change also 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," said 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."