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Business interruption (BI) ranks second in the ��Ӱ���� Risk��Barometer, behind the closely linked peril of cyber. It ranks��among the top three risks for companies of all sizes, and is��the second biggest concern in the Americas, Europe, Asia��Pacific and Africa and Middle East regions.

With almost all companies reliant on supply chains for��critical products and services, business interruption��and supply chain disruption remains at the forefront of��risk, explains Marianna Grammatika, a Head of Risk��Consulting at ��Ӱ���� Commercial:��“It is the extent of the��disruption that becomes the focus point. Some sectors of��industry operate with supply chains that have extensive��geographic footprints.”

The prominence of BI also reflects the volatile environment��that companies currently operate in, according to Alberto��Barani, a Business Interruption Group Leader at����Ӱ���� Commercial: “We live in a very interconnected��world. Despite efforts to improve resilience, the need for��efficiency means many companies still run with low levels��of stock and just-in-time manufacturing, which results in��little margin for errors or disruption.”

Covid-19 and the resulting disruption to supply chains has��been a wake-up call for companies. Compared with pre-pandemic��times, many companies are now much better��prepared for business interruption or supply chain events.

“Before Covid-19, companies were generally reactive to��events, but now they are much more aware of critical��threats and the need to diversify and protect critical��points. Awareness of business interruption and supply��chain vulnerabilities makes a business better prepared��and able to react in a smarter and more informed��manner,” Grammatika says.

According to the ��Ӱ���� Risk Barometer results,��businesses are most likely to develop alternative suppliers��(60% of responses) when taking action to de-risk supply��chains, followed by improving business continuity��management (42%), and identifying and remediating��supply chain bottlenecks (37%).

However, smaller companies and those in specialist and��high value industries are more limited in what they can do��to diversify their supply chains.

“Businesses may still have a number of options to mitigate��their exposure. This may include changing the business��model, and if this is not viable, there may be options��to reconfigure the supply chain – some sectors are��heavily concentrated on a small number of suppliers or��geography. For others, the cost of increasing redundancy��or relocating suppliers is just too great,” says Grammatika.

Cyber incidents and natural catastrophes are the top��two causes of BI feared most by companies, followed by��fire, and machinery / equipment breakdown or failure��(see chart).

However, almost any peril can cause disruption. BI is��closely related to many of the other top global risks in this��year’s ��Ӱ���� Risk Barometer, such as climate change��(#7), political risks and violence (#8), skills shortages (#10),��energy crisis (#11) and the impact of new technologies��(#12) to name but a few.

“The global risk landscape is constantly changing, with��climate change, digitalization, and geopolitics.��Some��risks lie dormant, but a significant enough change in��geopolitics or events such as extreme weather patterns��can very quickly change the predominant risks,”��says Grammatika.

The recent disruption in the Red Sea��– a vital trade route��between Europe and Asia��– due to Houthi rebel attacks��on vessels is the latest risk to hit supply chains. More than��400 container ships were diverted via the Cape of Good��Hope around the southern tip of Africa between mid-December 2023 and the beginning of January, 2024, as a result of��the attacks, prolonging journeys and causing delays to the��delivery of products.

That said, natural disasters and fire and explosion are��notable for their potential to generate large BI losses and��supply chain disruption. Severe flooding in Slovenia in��August gave rise to one of the biggest supply chain events��of 2023 [1], causing production delays and parts shortages��for European car manufacturers, while a fire at a major��liquefied natural gas facility in the US earlier this�� year is likely to result��in one of the largest BI losses for the energy sector in��recent times [2].

Companies also named BI as their top business concern��about climate change impacts in this year’s survey. However, BI related to climate change goes��further than just physical damage from storms and floods.��Extreme weather or climate events can have a widespread��impact, causing economic hardship and political and social��upheaval, as well as disrupting logistics and production.��For example, a severe drought restricted transits through��the Panama shipping canal in the last months of 2023,��causing congestion and delays of up to two weeks [3].

Climate change is also having an indirect effect, as��decarbonization creates new supply chains.

“Emerging supply chains linked to the energy transition��have already been identified as geographically��concentrated as they depend on elements which can��only be found in a select number of regions in the world,”��says Grammatika. “Countries are looking to secure��critical supplies of technology and rare earth elements��required to power transition technology like electric cars��and enable renewable energy sources like solar panels.��Political risks have the potential to cause disruption and��are harder to mitigate.

“Geopolitical risks are of growing concern for businesses��in emerging energy and technology supply chains, as��well as high value sectors like technology and artificial��intelligence. Producers of rare earth elements are often��found in the most underdeveloped and politically volatile��areas, as well as being exposed to environmental, social,��and governance (ESG) risks like modern slavery, human��rights, and deforestation.”

In a fast-changing world, companies need to maintain��regular audits of systems and to test their business��continuity plans.

“There are always organizational changes in companies,��and people move. There needs to be systems in place to��manage change,”��says Grammatika.

“For those that haven’t implemented business continuity��management (BCM), they should carry out a business��impact analysis and risk assessment in the company��at least,” adds Barani. “For those that have already��embedded BCM into the business, it is vital they regularly��check, update and test these plans, otherwise they won’t��be able to react when the crisis starts.”