Allianz identifies the major business risks for 2024

January 17, 2024 6:40 AM

Risk management is a consideration for any entity and knowing what to anticipate can help business owners take appropriate steps to mitigate specific threats. The 13^th Annual Allianz Risk Barometer reflects the insights of more than 3,000 respondents from around the globe and focuses on the top three risks they believe to be the most significant factors affecting business in their country in 2024. The impact of the threats varies in importance from country to country.

#10 – Shortage of skilled workers

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The talent gap is a top five concern in Australia, Bulgaria, Canada, Croatia, Germany, Hungary, Ireland, Netherlands, Switzerland and U.K. Finding and retaining a skilled workforce continues to be a challenge, and is particularly acute in the healthcare and life sciences sectors, while the technology industry is having difficulty attracting individuals with IT and data skills worldwide.

#9 – Market developments

The survey identified three factors impacting the global markets: the end of comprehensive globalization, the availability of skilled labor, and what the report identifies as the end of innocent technology. A wide range of investment restrictions and sanctions could lead to accelerated consolidation as access to new markets, ideas and employees becomes more difficult. The talent shortage continues to be a challenge, but mid-size companies seem to be the most affected. The advent of artificial intelligence will change every industry and aspect of life; however, the consequences of its use are still unknown.

#8 – Political risks and violence

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Events like the war in Ukraine and the conflict in the Middle East, as well as ongoing political risks will continue to be challenges in 2024. Protests in France and other European countries, as well as turmoil in several African countries are creating economic challenges in multiple parts of the globe.

#7 – Climate Change

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Brazil and Turkey ranked climate change as a top risk, but the increased severity of weather events and wildfires in Canada, as well as heatwaves across Europe and Asia, and flooding in India and Libya are bringing this issue to everyone's attention. Physical risks from extreme weather events are believed to cost the U.S. almost $150 billion annually, while leaving the utility, industry and industrial sectors exposed to more risks. However, the Allianz Risk Barometer also finds that businesses are focusing on and increasing their net-zero commitments.

#6 – Fire, explosion

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The risks of fire and explosion moved up from #9 in 2023 to #6, and fire continues to be a major cause of business interruption losses and supply chain disruptions. "The degree of disruption from fire and explosion can be very high, as it can take longer to recover from than many other perils, and the impact on suppliers can often be great," said Alberto Barani, a business interruption group leader at Allianz Commercial.

#5 – Macroeconomic developments

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While 2023 offered few economic surprises as the anticipated U.S. recession did not materialize and consumers continued to spend money, Ludovic Subran, chief economist at Allianz believes the signs are reversing for 2024, and shares that the U.S. will weaken and possibly slide into a recession. China, which saw a weaker economy in 2023 is expected to strengthen. Allianz Research estimates only 1% growth for the U.S. economy, while China could see 5% growth. The most vulnerable sectors of the economy are expected to be the hospitality, transportation and wholesale/retail industries.

#4 – Legislative and regulatory changes

As businesses navigate the increasing number of regulations, the report finds they have an asymmetrical effect, as policymakers take a more active role in steering some economic outcomes in a particular direction. Subran says, "This development is a double-edged sword for companies. One the one hand, they benefit from the subsidy race between states to attract 'strategic' industries. On the other hand, this activism is accompanied by a large number of new restrictions on investment — protectionism has reached a new level." And, despite promises to reduce bureaucracy, many companies will face increased administrative burdens to comply with these regulations.

#3 – Natural catastrophes

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According to the report, total economic losses from natural catastrophes are estimated to be $260 billion, according to an analysis by Swiss Re, due to events like earthquakes, wildfires, flooding and severe convective storms. Earthquakes in Turkey and Syria in February 2023 caused insured losses that exceeded $6 billion. Natural catastrophes were ranked the #1 risk in Croatia, Greece, Hong Kong, Hungary, Malasia, Mexico, Morocco, Slovenia and Thailand, and ranked as a top three risk in the U.S., U.K., Australia, Japan, and Turkey.

#2 – Business interruption

While many companies have recovered from the disruptions caused by the pandemic and the energy crisis, business interruption continues to be a top concern. According to the Allianz Risk Barometer, it falls into the top three risks for companies of all sizes in the Americas, Europe, Asia Pacific, Africa and Middle East. As business becomes more global, so do the environments in which they operate, which causes some volatility as well. Alberto Barani, a business interruption group leader at Allianz Commercial explains, "We live in a very interconnected world. Despite efforts to improve resilience, the need for efficiency means many companies still run with low levels of stock and just-in-time manufacturing, which results in little margin for errors or disruption."

#1 – Cyber incidents

Cyberattacks affect everyone and cyber incidents which were the top risk of 2023 is also the number one risk identified in 2024. There was a surge in ransomware attacks in 2023 and cyber threats continue to evolve. According to the report, hackers are increasing their focus on IT and physical supply chains, as well as finding new ways to extort money from businesses of all sizes. It is a type of business interruption that every company fears and can affect any line of business. Ransomware claims increased in 2023 by 50%, and this activity is expected to cost $265 billion annually, especially as threat actors find new uses for artificial intelligence to expand their attacks.

Patricia L. Harman

Editor-in-Chief, Digital Insurance