Business interrupted: Supply chain failure, cyber loss top global business risks

Estimates show that BI and supply chain-related losses typically account for 50 to 70 percent of insured property catastrophe losses

For the second consecutive year, business interruption (BI) and supply chain risks are top of mind for senior-level decision makers as they navigate their way through the murky waters of technological, economic and regulatory risks.

In fact, 43 percent of companies cited BI and supply chain risk as one of the three most important for businesses, according to a new study from Allianz Global Corporate and Specialty (AGCS).

Estimates show that BI and supply chain-related losses typically account for 50 to 70 percent of insured property catastrophe losses, as much as $26 billion per year. The convergence of technological, economic and regulatory-related risks call upon risk managers to identify the impact of interconnectivity between different risks, according to Axel Theis, CEO of AGCS.

“Today’s business continuity plans must prepare for an increasing range of risk scenarios which need to reflect the sometimes hidden knock-on effects,” explained Theis. “For example, a natural catastrophe can result in BI, systems failure, power blackouts and a list of other perils.”

Without a doubt, business continuity planning and supply chain management need to be an integral part of any company’s procurement and selection process, adds Paul Carter, global head of risk consulting at AGCS.

“Without adequate data, it is not possible to identify hotspots within a supply chain,” says Carter. “Therefore data transparency between clients and insurers will become an increasingly important part of any supply chain analysis.”

While BI and supply chain risks are top of mind for C-suite executives, the most heightened risk awareness is around cyber and loss of reputation issues, the study reveals. On average, it is estimated that a security breach costs U.S. businesses $5.4 million — the highest in the world.

In this era of rising cyber-criminality, IT security is not enough. A comprehensive set of information and network policies and procedures backed by the board of directors is critical, according to Nigel Pearson, global head of fidelity at AGCS.

“They also need to be properly implemented, tested and updated on a regular basis to ensure the risk management approach is adequate,” Pearson explains.

While it is clear that a supply chain problem can harm a company’s reputation, proper supply chain management can actually improve a company’s reputation, Ashley Watson, senior vice president, deputy general counsel and chief ethics and compliance officer at Hewlett-Packard, explains in a recent interview with InsideCounsel. “When we engage with a supplier in a particular area and give them a big contract, we give a boost to that area,” Watson said. “There is an economic boost that comes from the supply chain. We can contribute by hiring suppliers, and that helps our local reputation.”

 

For more stories on supply chain management and security risk, check out InsideCounsel’s coverage below:

Supply chain management’s impact on corporate reputation

Top 5 cybersecurity trends for 2014

Apple updates compliance figures on supply chain partners

Proper supply chain management can minimize risk

Contributing Author

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Erin E. Harrison

Erin E. Harrison is the Editor in Chief of InsideCounsel magazine. Harrison’s diverse professional background includes extensive expertise in both print and online media, highlighted...

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