The top company risks for 2014 include business and supply chain interruption, natural catastrophes and fire/explosion, according to the “Allianz Risk Barometer,” a survey from Allianz Global Corporate & Specialty SE.
The survey highlights the increasing complexity of business risks, including a combination of new technological-, economic- and regulatory-related risks, potentially creating a systemic threat for businesses, Allianz said. The company suggests companies respond to those challenges with a combination of stronger internal controls and a holistic approach to risk management.
“Companies are increasingly concerned about the interconnectivity between different risks and their business continuity plans need to account for an escalating variety of risk scenarios, including the sometimes hidden incidental effects,” said Hugh Burgess, CEO of Allianz Global Corporate & Specialty North America. “For example, a natural catastrophe such as Superstorm Sandy in 2012 resulted in wind damage, power outages, and IT-system failures that in turn led to substantial business interruptions.”
The top risks, generating the largest losses globally, are business interruption and supply chain losses. In the United States, 61 percent of participants identified them as the top business risk in 2014, accounting 50 to 70 percent of all insured-property losses, and as much as $26 billion per year based on data from 2013, Allianz said.
“Any disruption be it due to natural catastrophes, IT/telecommunication outages, transportation issues, a supplier’s bankruptcy or civil unrest may lead to a snowball effect that can be devastating to their bottom line,” said Tom Varney, regional manager for Allianz Risk Consulting in the Americas. “Business continuity planning is critical and should be part of any risk manager’s supplier selection process. However, it is no longer enough to have transparency of your most important suppliers; you also need to know how they manage their own supply chains.”
Mid-size companies are more concerned about fire and explosion, Allianz said, followed by the effects of economic austerity measures and credit availability.
Natural catastrophes totaled $38 billion in 2013, compared to $75 billion in 2012, according to Swiss Re as quoted by Allianz, and were even more costly than business interruption damages, Allianz said, despite 2013 having been a comparatively moderate year in terms of CAT losses in the United States. Natural catastrophes were ranked as the second business risk, followed by fire at 24 percent.
Top 10 U.S. Business Risks:
- Business interruption, supply chain (61 percent)
- Natural catastrophes (58 percent)
- Fire/explosion (24 percent)
- Loss of reputation, brand value (17 percent)
- Cyber crime, IT failure, espionage (15 percent)
- Intensified competition (12 percent)
- Quality deficiencies, serial defects (10 percent)
- Environmental changes (10 percent)
- Changes in legislation and regulation (10 percent)
- Market stagnation or decline (10 percent)
Loss of reputation or brand value joined the top 10 list, and was the fourth ranked business risk as cited by U.S. companies. Cybercrime, including IT failures and espionage, were No. 5. Those rankings were lower for non-U.S. companies, which ranked cyber at No. 8 and loss of reputation at No. 6.
The third annual survey included more than 400 corporate insurance experts from 33 countries, Allianz said.
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