Pandemic outbreak overtakes Business Interruption as top business risk in China:Allianz Risk Barometer 2021:
In response to heightened BI vulnerabilities, many companies are aiming to build more resilient operations and to de-risk their supply chains. According to Allianz Risk Barometer respondents, improving business continuity management is the main action companies are taking (62%), followed by developing alternative or multiple suppliers (45%), investing in digital supply chains (32%) and improved supplier selection and auditing (31%).
Pandemic outbreak (#1 with 36% responses) rises six spots to be the top business risk in China, the epicentre of Covid-19, in the 10th Allianz Risk Barometer 2021.
Business interruption drops one position (#2 with 33% responses), reflecting the potential disruption and loss scenarios companies are facing in the wake of the Covid-19 pandemic, while changes in legislation and regulation jumps seven positions to tie with business interruption (#3 with 33% responses).
Top China Risks
In China, it's no surprise that Pandemic outbreak topped the list as China was the epicentre of Covid-19 where the virus was first detected at the end of 2019. Business interruption is a close second as individual companies and even entire sectors suffered large business interruption events during the nationwide lockdown as a result of the pandemic and it's the largest catastrophic event to hit a modern, globalised and interconnected economy.
In response to heightened BI vulnerabilities, many companies are aiming to build more resilient operations and to de-risk their supply chains.
According to Allianz Risk Barometer respondents, improving business continuity management is the main action companies are taking (62%), followed by developing alternative or multiple suppliers (45%), investing in digital supply chains (32%) and improved supplier selection and auditing (31%).
According to AGCS experts, many companies found their plans where quickly overwhelmed by the pace of the pandemic. Business continuity planning needs to become more holistic, cross-functional, and dynamic, monitor and measure emerging or extreme loss scenarios, be constantly updated and tested and embedded into an organization's strategy.
Changes in legislation and regulation jumps seven positions to tie with business interruption as trade wars and tariffs intensify amidst growing economic sanctions and protectionism. In the last two years, the proportion of Chinese exports to the US subjected to additional tariffs has soared from a nearly insignificant share to over 70%. And the share of US exports to China subject to tariffs has skyrocketed, from 2% in February 2018 to more than 50% two years later.
Market developments ranks fourth in both the China (29%) and Global (19%) rankings reflecting the risk of rising insolvency rates following the pandemic worldwide.
According to Euler Hermes, a trade credit insurance subsidiary of the Allianz Group, there are two clusters of countries, those that will see a stronger rise in insolvencies in 2020, and those that will see a delayed surge in 2021. The bulk of insolvencies will come in 2021 as Euler Hermes' global insolvency index is expected to hit a record high for bankruptcies, up 35% by the end of 2021, with top increases expected in the US, (up 57% by 2021, compared to 2019), Brazil (up 45%), China (up 40%) and core European countries such as the UK (up 43%), Spain (up 41%), Italy (up 27%), Belgium (up 26%) and France (up 25%).
Most Asia Pacific countries are in the first group (China, Japan, South Korea, Taiwan, Hong Kong and New Zealand, with India as key exception) mainly because they were the first to be impacted by the Covid-19 outbreak. The earlier economic recovery of the region will help limit the rise in insolvencies for 2020, but the stricter and/or longer lockdown measures will also cap the recovery and keep companies under pressure up to 2021, when the region will see another rise in insolvencies. China tops the list and it is followed by Singapore (+39%), Hong Kong (+23%), Japan (+13%) and Australia (+11%).
Patrick Zeng, CEO of Hong Kong & Greater China & Regional Director of Distribution for AGCS said: "The silver lining to the pandemic and the economic challenges that follow is that it will likely spark a period of innovation and market disruption. We anticipate the accelerating adoption of technology, hastening the demise of incumbents and traditional sectors, giving rise and opportunities to new companies and the way business is done. As a leading partner in risk management we look forward to strengthening our business relationships and facilitating this transformation."