According to the Allianz Risk Barometer 2023, despite positive moves to diversify business models and supply chains since the pandemic, businesses continue to experience significant disruption around the world and business interruption is the biggest concern for companies in the hospitality, leisure, and tourism industries.
Covid-19 came as a massive shock, creating global shortages, delays, and higher prices, while the war in Ukraine triggered an energy crisis, turbocharging inflation.
The Allianz Risk Barometer is an annual business risk ranking compiled by Allianz Group’s corporate insurer Allianz Global Corporate & Specialty (AGCS), together with other Allianz entities, which incorporates the view of 2,712 risk management experts in 94 countries and territories including CEOs, risk managers, brokers, and insurance experts.
Respondents were questioned during October and November 2022. The survey focused on large- and small- to mid-size companies. Respondents were asked to select the industry about which they were particularly knowledgeable and to name up to three risks they believed to be most important. It is being published for the 12th time.
Top Five Risks In The Hospitality, Leisure, And Tourism Industry
Given the current ‘permacrisis’, business interruption and supply chain disruption (with 33% of responses) ranks as the most concerning risk in the hospitality, leisure, and tourism industry up from second in 2022.
Natural catastrophes (25%) moves up from fourth to second due to frequent exposure to different types of natural catastrophe, including meteorological, geophysical, climatological, and hydrological. With 23% of response Fire, explosion (new entrant), and Pandemic outbreak are joint third. Climate change maintains the fifth position with 20% of responses.
As a consequence of many of the other top risks in the Allianz Risk Barometer, BI is of perennial concern for companies in the hospitality, leisure, and tourism industry. Therefore, it comes as little surprise that BI and supply chain risks dominate this year’s Allianz Risk Barometer and, in the sector, according to Ronald Dodo-Tabaziva, a Head of Property at AGCS.
“Business interruption will always be a foremost concern given it is closely linked to profits and revenues and because business models are vulnerable to the geopolitical landscape. Lean supply chains are not always as good value as they appear and there can be a very high dependence on single geopolitical regions such as China for example. The biggest issue is whether organizations have the ability to transform their supply chain with local reinvestments for example or partners in safer geopolitical regions.”
Ronald Dodo-Tabaziva
The scope of disruptive sources is wide. Cyber is the cause BI companies fear most (45% of responses); the second most important cause is the energy crisis (35%), followed by natural catastrophes (31%). The skyrocketing cost of energy has forced some energy-intensive industries to use energy more efficiently, move production to alternative locations or even consider temporary shutdowns. The resulting shortages threaten to cause supply disruption across a number of critical industries.
A possible global recession is another likely source of disruption in 2023, with potential for supplier failure and insolvency, which is a particular concern for companies with single or limited critical suppliers. According to Allianz Trade, global business insolvencies are likely to rise significantly in 2023: +19%.
Natural Catastrophes Remains A Priority Risk
In Africa, insurance penetration is seldom above 1% of the national GDP. The combination of low insurance coverage and high hazard has ensured national catastrophe remains a priority business risk in those regions. The shortfall in protection represents an opportunity for insurers to close this gap and help to build more resilient societies in vulnerable regions for the future.
Notable events that affected the sector in 2022 include widespread flooding in South Africa, which caused the death of almost 500 people and displaced more than 40,000 people, a tropical storm in Eastern and Southern Africa, which affected around 21000 people, drought in the Horn of Africa, which forced families across Djibouti, Eritrea, Ethiopia, Kenya, and Somalia to leave everything behind in search of food and water, and put their health, safety, and education at risk.
Largest Single Cause Of Losses
Fire risks are often well understood and typically well-risk managed. However, fire remains a significant cause of 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 (equivalent to €18bn). Aging property and infrastructure is a worrying cause for fire and BI-related losses, as is a lack of trained personnel.
“Aging assets and processes are harder to maintain, and these can be contributory factors impacting fire and explosion losses,” explains Dodo-Tabaziva.
“A number of claims were caused by human errors in the first instance, but these errors also occurred because of production pressures and the hiring of third-party contractors to maintain works, who may not have had the same expertise and knowledge of the permanent workforce.”
Dodo-Tabaziva
Regularly assessing and updating prudent fire mitigation practices, including preventative measures, fire extinguishing methods, and contingency planning, remain essential for all businesses to lower the risk of loss from an incident.
While the pandemic outbreak plummeted down the list of concerns overall in the report globally (number 4 in 2022 to number 13 in 2023) as vaccines have brought an end to lockdowns and restrictions in most major markets, it is still a major concern in the hospitality, leisure, and tourism industry.
“One of the lessons from the pandemic has been the importance of people for business continuity, as well as the broader societal environment in which business operates,” adds Dodo-Tabaziva. “The past three years have demonstrated the need to focus on the whole business and not just specific triggers for business interruption.”
Climate Change Increasingly Felt By Companies
Climate change and global warming threaten companies in a number of different ways. First and foremost, higher property damage and business interruption risk as a result of natural hazards and extreme weather events such as floods, storms, thunderstorms, or droughts. Then there is the threat of legal and liability risks due to the comprehensive regulatory framework around the world, increasing disclosure requirements, and the threat of greenwashing accusations or climate lawsuits.
Last, but not least, companies are confronted with a wide range of transformation risks resulting from new market conditions or product requirements, or from changes in business strategy. All these effects of climate change are increasingly felt by companies.
Nevertheless, those risks which are more immediately experienced such as cyber, high inflation or the energy crisis in the wake of the Russian invasion of Ukraine ultimately determine the risk perception of companies in 2023, whether it is multinational corporations or small enterprises.
According to respondents, the top three actions firms are taking to combat the direct impact of climate change are: adopting carbon-reducing business models (e.g., switching to renewable energy sources); developing a dedicated risk management strategy for climate risks; and creating contingency plans for climate change-related eventualities, such as assessing critical systems and resources.
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