Up high on the list of risks (up from #10 to #3 year-on-year), Macroeconomic developments such as inflation, financial market volatility and an expected recession as well as the global Energy crisis (a new entry at #4) are the top risers in this year’s list of global business risks.[1]
We summarise Allianz Risk Barometer’s top ten global business risks report for 2023 and outline how some of them might impact Australian businesses.
Given cyber-crime is now estimated to cost the world economy in excess of $1 Trillion a year, it’s not surprising that cyber risk is such a major concern, as identified by the 2023 Allianz Risk Barometer research, with over 33 percent of respondents selecting Cyber as their greatest business risk.
With increasing incidences of Cyber ransomware attacks, data breaches and other major IT outages, Allianz’s research shows that companies seem to be more worried about the threat of a Cyber breach than business and supply chain disruption, natural disasters or the Covid-19 pandemic, all of which have heavily affected organisations in the past year.
The sheer frequency of cyber-attacks everywhere around the world remains high, with losses continuing to increase as criminals become more sophisticated in their efforts to extort more money, while the average cost of a data-breach is at an all-time high.
Find out how Cyber insurance can minimise the impact of a potential Cyber incident.
Following another year of global supply chain disruption, Business Interruption ranks as the second most concerning risk. Indeed, a number of BI-related risks have climbed this year’s rankings, reflecting the economic and political consequences of the pandemic and war in Ukraine.
Businesses have become more vulnerable following recent macroeconomic turmoil and the war in Ukraine, which triggered shortages and price increases in energy, food and certain raw materials. The conflict has added further pressure to supply chains struggling with post-pandemic disruption and they are a long way from recovering.
Having Business insurances in place is one way to counter potential business risks and provide peace of mind that your business will still be able to operate if there is a disruption.
At the beginning of 2022, many of us hoped for a continued global economic recovery after the Covid-19 crisis, but Russia’s invasion of the Ukraine soon cancelled out these hopes. The Allianz research suggests that 2023 is likely to be equally pessimistic, with Macroeconomic developments coming in at number three for the first time in over 11 years.
The energy crisis arrives in the top 10 global risks for the first time at #4, as the world comes to terms with spiraling fuel costs, supply disruptions, rising inflation and the effects of Russia’s invasion of Ukraine. Even before the war in Ukraine, energy prices had been rapidly rising. The effect on Europe was felt much more severely than Australia however, given the EU’s dependence on imported, non-renewable energy sources – a quarter of all energy consumed in the EU came from Russia, including 40% of its natural gas [2].
Legislation ‘never sleeps’ with new rules and regulations continuing to multiply across all industries. This year will be no exception according to Ludovic Subran, Chief Economist at Allianz. “More and more new rules, standards, levies and sanctions will not bring the international flow of goods to a standstill, but they throw a spanner in the international division of labor, rendering it less efficient,” says Subran. “For many companies, the new regulations go hand in hand with a considerable amount of additional work. Reporting and compliance are increasingly becoming strategic functions within companies.”
2022 was a horrific year as far as natural catastrophes across the globe. The risks of global warming and the pressure for businesses to act continue after insured losses from natural catastrophes continue to be above the 10-year average of $81bn, at $115bn [3]. Hurricane Ian, which struck Florida in September 2022, was the second costliest natural catastrophic event of all time, with an estimated insured loss of $50-$65 bn. In Australia, the floods across the east coast resulted in insured losses of around $4 bn[4] in 2022.
This risk has dropped down the list of top 10 in importance year-on-year, most likely because the war in the Ukraine and other economic factors such as inflation and the energy crisis have taken centre stage, but the Allianz Risk Barometer results show that companies are still continuing to take risk mitigation action as far as climate change (ie switching to renewable energy sources, creating contingency plans for climate change related incidents etc).
Another result of the Covid-19 pandemic is a shortage of skilled workers, and this has been experienced across all countries. It is a considerable business risk given the significant reduction in an available workforce at a time of huge demand for new staff. A study by consultant McKinsey revealed that 40% of workers globally said they may consider leaving their current jobs, so businesses need to consider retaining their skilled staff and attracting new ones – a major challenge given how low the unemployment rate is in Australia. [5]
Fire risks are often well understood and typically well risk managed, particularly in Australia where we have a dedicated ‘fire’ season. However, fire remains a significant cause of business interruption (BI) and supply chain disruption, especially where companies rely on third party suppliers for critical components. Claims analysis by Allianz shows that fire is the largest single cause of corporate insurance losses, accounting for 21% of the value of 500,000+ insurance industry claims over the past five years.[6]
2022 was another year of global instability, with conflict and civil unrest dominating the news, so much so that ‘political risks and violence’ ranks as a new entry in the top 10 global risks. In 2023 we can expect continued political unrest on many fronts (Russia, Ukraine, China, Taiwan, and Iran). The invasion of Ukraine by Russia in 2022 has intensified the risk landscape as economies around the world also contended with post-Covid recovery, inflation, rising interest rates and the rising cost of living.
Understanding how to mitigate some business risks is the first step to being adequately prepared for the future. Talk to one of our Provident Insurance Advisers who can offer professional insurance advice specific to your particular circumstances, and also offer solutions designed to protect you and your business from the unexpected.
The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Provident Insurance Services or one of our Authorised Representatives around Australia.
[1] Allianz-Risk-Barometer-2023-summary.pdf
[2] Allianz-Risk-Barometer-2023-summary.pdf
[3] Swiss Re, Hurricane Ian drives natural catastrophe year-to-date insured losses to USD 115 billion, Swiss Re Institute estimates, December 1, 2022
[4] Insurance Council of Australia, Insurance Council welcomes $800 million NSW Flood Resilience Package, October 28, 2022
[5] McKinsey & Company, The Shortlist, July 15, 2022
[6] Allianz Risk Barometer 2023 – Fire and explosion | AGCS