2021’s Top Risks in Review and How We Can Anticipate the Ones to Come in 2022
With the year coming to a close, hopes are shifting to the new beginnings that 2022 may bring.
To help prepare for what lies ahead we must also review of what has transpired over the past year.
Recalling our predictions for 2021 made at the 2020-year end, we can take stock of lessons learned to help build resiliency in 2022.
Prolonged Recovery and Economic Strain
As economic recovery efforts were gaining traction, new COVID variants emerged to stymie their impact.
First Delta, and now Omicron, variants are testing our resolve across physical, mental and economic planes. The ongoing supply chain disruptions have put the rate of inflation at 6.8% as of November – the highest since 1982. Surging costs for food, housing and energy drove this increase.
Another key driver is the varying levels of vaccine access and reach of recovery impact across countries. The IMF reported that close to 40% of people in advanced economies have been vaccinated while emerging markets have seen only 11%, with an even smaller percentage in low-income developing countries.
Uneven vaccination rates help new variants spread more easily across borders, hindering economic recovery efforts.
The persistent economic strain is also widening the wealth and equality gap, driving the most vulnerable amongst us deeper into poverty.
2021 saw the average income of the bottom 40% of the global income distribution drop by 6.7% as compared to pre-pandemic levels. This is resulting in low-income developing countries experiencing a deeper, longer-lasting COVID crisis than advanced economy countries.
Rising Geopolitical Tensions and Polarization of Society
Another area of focus this year has been the growing political divide and increased geopolitical tensions, which have been further intensified by the pandemic impact.
While the elections may have passed, the highly polarized political landscape has not.
Increased political division remains, displaying itself in the highly partisan gridlock that is stalling much of the current administration’s agenda. Fiscal showdowns around raising the debt ceiling and lack of unified vaccine mandates are just some of the repercussions we are seeing from this toxic political climate that could have devastating effects.
Political tensions go beyond our domestic borders. Geopolitical tensions between the U.S., China and Russia have been on the rise in recent months. As Russia continues to amass troops on Ukraine’s borders, the U.S. is increasing its rhetoric in a warning to deter invasions.
Similarly, China is raising added concerns of destabilization with its growing partnership and relationship with Russia. This is further fueled by the U.S. and other high-profile countries indicating they would boycott the upcoming Beijing Olympic games due to cited human rights violations by the Chinese government.
As we saw in prior years via trade wars and saber rattling, this type of increased tension can have a big impact on global economic stability.
At minimum, another trade war can further hinder economic recoveries, and at worst it can devolve to large scale military conflicts with dire global consequences. A deeply divided U.S. in the era of highly distributed misinformation, adds another layer of uncertainty when a united diplomatic strategy is crucial.
Food Shortages and Supply Chain Disruptions
The disruption across production and supply chains has also lingered well into 2021. Fueled by labor shortages, its impact has been most visible at the grocery stores.
With a higher rate of restaurant closures and limited seating capacities for much of 2021, the number of individuals eating at home rose drastically. This put higher demand strains on food supply chains. Grocery stores struggled to keep shelfs stocked with core items like chicken, due to labor shortages at poultry farms and knock-on effects of increased production costs.
Labor shortages were not the sole cause of the disruption. The ongoing impact of climate change and increased severity of extreme weather events also caused havoc throughout much of 2021.
Unprecedented storm activity, like the winter storm in Texas which shut down the state’s power grid, created massive disruptions for its local residents over a period of weeks.
The storm crippled the state’s transportation system, practically shutting down supply chains across industries. Airports, railroads, and trucking were unable to provide shipping due to the widespread outages, traffic jams, and other destruction created by the storm.
Increased Cyber Attacks
Cyber has been a growing risk, even before COVID 19, however the pandemic certainly did raise it to new levels.
The shift to telework created out of necessity during the early days of the pandemic carried over to 2021, and is here to stay in one iteration or another. So too are the increased vulnerabilities and cyber-attacks that this shift has created.
2021 not only saw increased attack attempts, but it also saw an increase in overall costs. According to IBM and the Ponemon Institute, the average cost of a data breach reached $4.24 million per incident in 2021, the highest in 17 years.
Ransomware was a key driver of this cost surge. 2021 saw several notable breaches, like the Colonial Pipeline attack which not only asked for a $4.4 million bitcoin ransom, but shut down Colonial’s activities through much of the eastern half of the United States.
This led to fuel shortages and panic buying amongst consumers. As a result, the Biden administration issued broad executive orders mandating new cybersecurity regulations and reporting standards to the federal government for critical industries.
The impact of these attacks reached new heights in 2021. Insurer CNA endured a record setting $40 million ransom attack, while the Kaseya software attack paralyzed over 1500 business and government agencies around the globe in record speed.
The increased frequency, cost and severity of these ransom attacks also impacted the availability of cyber insurance. Insurers tightened cyber coverage, imposed stiff rate increases, some as high as 100%, and imposed stricter underwriting guidelines in an effort to offset claims losses.
2021 showed us that as we continue to make our way out of the pandemic, we are not out of the woods yet. There is hope on the horizon that we will soon be able to contain COVID’s impact.
With vaccine manufacturers working diligently on ways to contain new COVID variants, and economic recovery efforts underway, it falls on business to do their part as well.
If the past two years have taught us anything, it is that we must continue to think of risk in an agile manner and strive to build resiliency, not merely loss avoidance.
This is the only way we will be able to adapt and overcome the long tail impact that COVID will have. &