February 22, 2024

Allianz Risk Barometer Says Cyber and BI Biggest Worries

Business Man Thinking at Laptop in Office

Extreme weather events, fires and explosions, geopolitical risks, ransomware attacks and the Covid-19 pandemic have all tested global supply chains in recent years.

This is reflected in the results of the Allianz Risk Barometer, an annual survey which asks businesses to nominate their top risk concerns for the year ahead. In the 2023 survey, cyber incidents and business interruption (BI) rank as the biggest company worries for the second year in succession. Levels of interruption increased dramatically following Covid-19, as shortages and transportation delays exacerbated the business impact of natural catastrophes, fires, and machinery and equipment breakdowns, leading to shortages of materials and spare parts and longer times to complete repairs. However, many of these supply chain pressures have eased in 2023, according to Scott Inglis, Head of Global Practice Group for Property and Business Interruption Claims, Allianz Commercial.

Extreme weather dominates recent claims activity

However, not all business interruption loss activity has eased. The top causes of business interruption claims remain consistent, with the most frequent and expensive damage arising from natural catastrophe and fire and explosion activity, with natural catastrophe-driven loss activity rising, according to Sarah Versavaud, an Executive General Adjuster in the Chief Claims Office at Allianz Commercial.

“When looking at the costliest business interruption events for large corporates over the past two years, the top 20 is dominated by natural catastrophe activity,” says Versavaud.

Political violence on the rise

Businesses and their supply chains face considerable geopolitical risks with war in Ukraine and ongoing tensions between the US and China over Taiwan, and more recently with conflict in the Middle East. So far, these events have only had limited impact on supply chains and shipping routes but could become more relevant for business interruption going forward. “There are a lot of political headwinds out there right now,” says Inglis.

The Russia-Ukraine conflict has resulted in some claims, mostly property damage and consequential business interruption from retail businesses with exposures in the region, explains Versavaud. “It can be challenging to get a handle on such claims, where getting loss adjusters on the ground is sometimes not possible.”

Inflation, political instability, and climate change activism have also contributed to rising civil unrest in many parts of the world. According to analyst Verisk Maplecroft, political risk at the start of 2023 was at a five-year high, with some 100 countries considered at high or extreme risk of civil unrest. According to Versavaud, a wave of protests in France this summer following the fatal shooting of teenager Nahel Merzouk resulted in significant business interruption claims in retail business from riot cover under property insurance policies.

ESG concerns and ‘green clauses’

Environmental, social, and governance (ESG) concerns are increasingly featuring in property claims, with implications for the cost and extent of business interruption. Versavaud says large corporate clients are increasingly concerned about their environmental impact when rebuilding damaged property.

“It is encouraging that more companies are concerned about ESG in the context of claims and are interested in alternative solutions. However, sustainable options can also have implications for business interruption and insurance coverage. For example, sustainable options – such as shipping spare parts via a lower carbon intensive form of transport, rather than air freight – can result in a longer period of business interruption or lead to extra expenses,” says Versavaud.

Commercial property insurance traditionally pays out on a like-for-like replacement basis, although ‘green’ reinstatement clauses are now being included in some policies that give insureds more flexibility around more sustainable options.

“We are seeing more requests from insureds to accommodate ESG requirements in claims, yet this is not always well covered by standard property policy wordings. We are introducing ‘green’ clauses that enable insureds to integrate sustainable characteristics into a rebuild, but these are not widespread, and do not always cover other areas of ESG such as expediting expenses.” The industry will need to work on this, says Versavaud.

Article Courtesy of SmartsPublishing.com