Page 27 - WAD Beyond Global May 2021

# 1 BUSINESS INTERRUPTION interconnected economy. The world has IT Communication at AGCS. “Given the
changed fundamentally over recent widespread disruption caused by Covid-19,
decades and this has led to accumulations it is no surprise that it is ranked as the
of risks and new loss triggers. The highest peril, while cyber was already one
pandemic has demonstrated just how of the most concerning potential causes of
vulnerable the world is to unpredictable business interruption.”
and extreme events and has highlighted
the downside of global production and One of the big lessons learned from
supply chains. When container shipping the pandemic is that extreme business
was effectively grounded in Spring 2020, interruption events are not just theoretical,
with fleets taking numerous ships out of but a real possibility. While a “known-
Covid-19 has dominated the risk landscape service in response to capacity shortfalls, risk”, the coronavirus pandemic was a
over the past year, adding to already global supply chains came under pressure. surprise event of global magnitude, with
growing concerns for business interruption Subsequently, components failed to many unexpected consequences. For
and cyber risk exposures among risk arrive and production came to a standstill example, a new strain of Covid-19 even
professiona Given the unprecedented in many industries, especially in the led to the sudden closure of UK ports and
disruption caused by the coronavirus automotive sector. borders in late December 2020, coinciding
outbreak, it is no surprise that business with existing port congestion during the
interruption and pandemic outbreak top A study by Euler Hermes1 found that Christmas period and the end of the Brexit
the 2021 Allianz Risk Barometer. Pandemic almost all (94%) companies surveyed transition period. Other potential triggers
is the biggest climber this year (up 15 reported a Covid-19- induced disruption for large-scale business interruption events
positions), with cyber incidents ranking a to their supply chains, while more than a in future could include environmental
close third. All three risks – and many of the quarter (26%) of US companies reported or natural disasters, further disease
others in this year’s top 10 – are interlinked, “severe disruption” as a result of the outbreaks, a large-scale cyberattack
demonstrating the growing vulnerabilities pandemic. This means awareness of or blackout, or even a solar storm. The
and uncertainty of our highly globalized business interruption risk is now at the very consequences of the pandemic are also
and connected world, where actions in top organizational level. It has become a likely to heighten business interruption risks
one place can spread rapidly to have discussion not just for risk professionals in other areas in coming years. Even as the
global effects. Looking forward, the but for company boards and shows the immediate health risks of the pandemic
pandemic shows companies need to need for businesses to build more resilient ebb with vaccinations, the accelerated
prepare for a wider range of business supply chains, as well as to find new ways push to digitalization will likely bring new
interruption triggers and extreme events to address uninsurable risks. Covid-19 is a risks, while the economic, societal and
than previously. Building greater resilience reminder that not all perils are insurable, political repercussions of the pandemic
in supply chains and business models will and that risk management and business could also bring sources of disruption for
be critical for managing future exposures. continuity planning play a critical role in years to come.
helping businesses survive extreme events.
ls, given the increasing reliance on The outbreak has also shown that business “Businesses have seen the consequences
technology and global supply chains. Prior interruption is highly correlated with many of the pandemic – the loss of revenue
to the pandemic, business interruption of the risks of most concern to businesses and disruption to production and supply
had already finished at the top of the today as identified in the Allianz Risk chains – which has resulted in heightened
Allianz Risk Barometer seven times over Barometer, such as natural catastrophes awareness of the potential for losses
the past decade. Meanwhile, cyber risk has and climate change, political risks and civil from both traditional physical sources of
regularly ranked in the top three corporate unrest, and even rapid changes in markets, business interruption and non-physical
perils in recent years, coming first in 2020. in addition to cyber. damage triggers. The pandemic has
Individual companies, and even entire shown that business interruption risk is not FEATURE
sectors, have suffered large business “Business interruption is the consequence isolated to a geography or sector, and that
interruption events in the past, but the – it is the impact on the balance sheet – it can be overarching and span different
pandemic of 2020 is the first catastrophic caused by perils,” says Philip Beblo, Global geographies, markets and customers,”
event to hit a modern globalized and Practice Group Leader Utilities & Services, says Beblo.

TRADITIONAL BUSINESS INTERRUPTION RISKS The cost of large business interruption claims following fire and
STILL NEED TO BE MANAGED. extreme weather has been increasing with the trend towards higher
The pandemic has added to already growing awareness of business values and more concentrated supply chains. Traditional business
interruption exposures triggered by non-physical damage, such as interruption exposures are also rising with climate change, as more
cyber, blackouts, political risk, or disruption caused by a third-party volatile and severe weather brings the increased risk of storms, floods
supplier. However, natural catastrophes, extreme weather and fire and wildfires.
remain the main causes of business interruption for many industries,
and are the biggest threat for manufacturing and industrial plant and “Just because emerging risks like cyber are coming onto the stage,
equipment. it does not mean that traditional business interruption triggers are
any less dangerous,” says Beblo. “They will be just as relevant going
“Despite the ongoing trend for digitalization, traditional physical risks forward, and in the case of climate change will become even more
of fire and extreme weather will not disappear. Risk management of a threat to businesses in the future. The climate is changing and
has improved but fire remains an ever-present risk and a major cause we will increasingly see risks such as more intense hailstorms, floods,
of business interruption. Losses can be very large and we continue tornadoes and hurricanes in areas that are not always associated
to see a trend for severity of business interruption losses over time,” with such extreme events.”
says Beblo.
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