Business Interruption, Cyber Breaches and Political Unrest: How COVID-19 Exacerbated Pre-Existing Risks
It’s easy to remember the moment last March when the coronavirus became a global pandemic rather than a virus secluded in central China.
COVID-19 ravaged the world, forcing almost every sector of society and the economy to halt normal operations.
And while experts are concluding that the summer could be our first glance at normalcy since the pandemic’s beginning, COVID-19 is likely to remain a top risk concern.
Allianz released its annual “Allianz Risk Barometer,” a survey measuring the top global risks for the completed year. Unsurprisingly, COVID-19 was considered a major risk throughout the report.
Risk management experts from over 92 countries and territories participated in the Allianz survey. The survey showed that three risks were prominent across several countries — pandemic outbreak, business interruption and cyber incidents.
Interconnectedness became a central theme throughout the report. While various risks were noted, it was evident that the increase of some risks magnified others.
Additionally, a risk like pandemic outbreak, which was 15 positions up from last year’s report, had substantial effects on risks like business interruption and cyber security breaches. This interconnectedness between exposures and lines of coverage projects “the growing vulnerabilities and uncertainty of our highly globalized and connected world,” according to the report.
COVID-19, the Global Supply Chain and Vulnerable Businesses
The onset of the pandemic did not create business interruption and cyber risk; it heightened their prevalence.
COVID-19 provided a first: An event to detrimentally effect a global economy tightly connected. Ninety-four percent of businesses surveyed concluded that the pandemic acted as a major supply chain disruptor.
Experts have predicted that rising insolvency rates will reach their peak in early 2021 and will be “expected to hit a record high for bankruptcies, up by 35 percent, by the end of 2021.”
The pandemic also caused another already critical risk to become more dire: cyber incidents.
As COVID-19 forced a quick shift from an office environment to a remote work setting, the opportunity for fraud and theft to occur significantly increased. Displaced workforces equate to weakened protection and security against a cyber attack, leaving many businesses vulnerable to breach.
Luckily, our world still managed to operate in some capacity due to the availability of digital work. Virtual settings enabled businesses to remain productive throughout the majority of 2020. However, this acceleration to a more digitized workforce also lent itself to risks.
Allianz reported that the increased use of technology and a push to digitize supply chains could lead to technology failure. If this were to occur, businesses and supply chains would experience significant loss and interruption.
Despite this looming possibility, the surge of digitalization is already taking place. A survey by McKinsey, referenced in Allianz’s report, noted that “companies may have accelerated the digitalization of supply chains and operations by three to four years, while the importance of digital products has accelerated by seven years.”
Turning Risk into Lessons and Strategies
Like many risks, there are lessons to be found within them. COVID-19 is no exception. The surge of the pandemic proved there are cracks within global response to risk.
And while the rollout of vaccines provides some hope that the direct implications of COVID-19 will subside in 2021, the consequences of the virus are likely to continue to effect businesses and supply chains for some time to come.
Companies and businesses have realized their risk management protocols need to be updated or redesigned altogether. Most importantly, they need to broaden their scope when preparing for business interruption risk.
Thomas Varney, regional manager of risk consulting at AGCS, mentioned this concept, saying, “The best way for businesses to approach these types of situations is through business continuity scenario planning that challenges working environments and the ability of supply chains under various scenarios.”
These scenarios, some even highly unlikely, are key in understanding how a business, company or supply chain would fare should the unexpected risk occur.
In the survey, Allianz highlights one word that businesses need to embody in order to successfully combat business interruption risk: resilience.
“It needs to be embedded in the organization’s culture and help to make the remaining business interruption insurable,” said Philip Beblo, global practice group leader utilities & service at AGCS.
While COVID-19 may be one of the largest risks on a business’ radar today, it is not the only one to be mindful of. Climate catastrophes reached record-breaking numbers last year and political violence surged throughout the world. The key for businesses is to construct a game plan for each specific event, constantly evaluate that plan’s effectiveness, and make the necessary changes; and then repeat. &