Global risks 2019

Global Risks 2019 That May Affect You Even If You’re Operating Nationally

A main objective economic trend in the XXI century is the development of globalization in the world. This phenomenon is a characteristic feature of the entire world business system. Globalized economy reinforces old business risks and generates completely new ones. Individual national economies as well as market players that operate nationally may be strongly affected by growing global risks. Below we’ll examine shortly the most challenging perils worldwide and outline the possible ways of coping with them.

Cyber attacks

Nowadays rising cyber crime becomes one of the main risks in business not only for big corporations but for small businesses too. Hackers don’t recognize any boundaries between states and practically any company has pretty good chances to become their target in the era of globalized economy.

Cyberspace incidents include such cyber crimes as databases hacking and provoking technical failures in IT-systems. The companies all over the world are increasingly concerned about the growing sophistication of cyber attacks. Hackers’ attacks are becoming more focused, persistent and can seriously affect the internal operations of the company. As the frequency and severity of cyber attacks grow, companies should not underestimate the impact of such threats, especially operating in high-tech and related industries. Simple technical malfunction or user error can result in a failure of the entire IT-system providing an excellent opportunity for a hacker to make use of it. Timely warning and more developed monitoring systems are needed to prevent large losses from cyber attacks.

Cyber attacks and associated risks are very difficult to model and predict, since they acquire a systemic approach that discourages insurers. Insurers do not want to deal with covering costs of cyber attacks, although there are some companies willing to provide such services. But in this case there are serious limitations on insurance coverage and its cost remains very high.

Supply chain risks

Losses from supply chain disruptions account for about 60% of all losses on insured property. A lot of companies worldwide, including those from France, the UK, Germany, Australia, Brazil and the USA consider supply chain risks a peril number 1 for their activity.

Since supply chains become more complex in the era of globalization, any disruptions provoked by natural disasters, failures in IT systems, transportation problems or civil unrest could affect the companies very badly. A possible solution is developing adequate risk management strategies aimed at ensuring a continuous business activity. Such practice should become an integral part of the process of suppliers’ selection and arrangement of purchases for any company. Apart from this, if a company wants to be sure that it can take appropriate measures to minimize all the consequences, it’s not enough just to know the names of the company’s strategic suppliers.It’s highly recommended to understand to the full extent the way they manage their own supply channels. Being well aware of these issues, companies spend a lot of time trying to determine a direct damage and identify the impact of interruptions on their activities, but even more time is required for business risk analysis associated with subcontractors and suppliers.

Many multinational companies still have underdeveloped risk management program in the area of supply chain management.Very often there are no alternative contractors in many companies.

Intensified competition and rising volatility

Market changes affect particularly hardly the markets of technical and financial services, as well as segments of industrial, marine,pharmaceutical and transportation insurance. The risk of market changes is considered to be the second most important in Europe, Asia Pacific, Africa and the Middle East.

Many business segments now face a growing number of challenges that may eventually become a threat to their profitability and possibly to existing business model as well.

Business should be constantly ready to introduce new products and services to the market and develop innovative solutions to meet the expectations of consumers and stay in touch with a rapidly changing global market environment. Innovation cycles are getting shorter and there are fewer obstacles to enter the market.Moreover, a level of digitalization rises and the introduction of new technologies accelerates, because more flexible and dynamic startups join the game all the time. Additionally, the companies must comply with changing regulations, increased security requirements, as well as import and export restrictions.

Loss of reputation

A stable positive business reputation now becomes a critical asset of any company. The reality is that business success now is not determined by the amount of profit and the current well-being cannot guarantee the prosperity tomorrow. Only a positive business reputation can ensure a long-term business success for the company. It is no queer that a current market value of the company can be significantly higher than its balance value at the expense of its intangible assets, the most important of which is reputation. A good name is the main competitive advantage for any organization that may ensure it the leading positions on the market and successful development for many years ahead.

But even the most prosperous company with a famous brand cannot retain its leading position for a long time without a constant strengthening of its good name. That’s why an essential condition for the prosperity of businesses is collecting, structuring and transmission of positive information about the company and the benefits of its products. The most important task of reputation risk management in business environment today is to form and maintain an ongoing flow of information from the company to its target audience aimed at strengthening the business reputation. This issue is extremely complicated and requires to invest a lot of time, funds and creativity to see the first results. However, it’s very easy to lose everything as a result of a single wrong action and never regain lost ground. That’s why companies regard reputation risks very seriously and rank them very high in their business risk management system.

Natural disasters

There are still poor opportunities for a timely prediction of natural disasters all over the world. Natural disasters are always in trend and are considered to be one of the most substantial risks for any company.

“It’s not surprising that natural catastrophes top the causes of BI global businesses fear most as these events always lead to business interruption,” comments Volker Muench, Global Practice Group Leader, Property, AGCS Property Underwriting.

Many disasters happen as a result of failed attempts to struggle climate change. Climate changes and the dangers they bring shouldn’t be ignored since it is impossible to control them directly.“As the increase in the number of extreme weather events around the globe demonstrates, climate change is becoming more specific and threatening.More needs to be done in terms of prevention, than to rebuild what has been destroyed after each disaster”,says Clem Booth, Member of the Board of Management, Allianz SE.

The most unpleasant thing about natural disasters risks is that even firms outside of the suffered areas may prepare insurance claims, as it happened after the Thailand floods and the Japanese earthquake in 2011.

What should be done to mitigate the impact of the above risks?

First of all, the whole understanding of what is business risk should change. Any businessman has to realize that his undertaking is not performing separately and world processes do have a great influence on it. Global economy makes each market participant to be involved in general trends regardless of someone’s desire.

Careful research of the enterprise risk management is particularly important for insurance companies operating in the area of corporate insurance. Risk managers of insurance companies should work closely with the risk managers of corporate clients in order to identify the possible risks correctly and develop strategies to overcome them. The elaboration of incorrect strategy of preventing risk situations may cause serious financial losses to the insurance company and its clients.

Considering a rapid spread of cyber attacks threats, it’s necessary to pay more attention to this issue and invest more funds in creating effective safety measures. Insurance companies, especially in developing countries, have to create special departments that unite IT specialists and financial analysts to make the assessment of possible cyber risks more realistic.
The increasing interdependence of industrial segments and processes means that businesses today are subject to an increasing number of risks able to disrupt their activities. A quantity of negative effects is growing rapidly and one risk may bring several others into existence. Natural disasters or cyber attacks may easily cause breaks in the production of not only separate companies, but also entire sectors or infrastructure objects.

That’s why risk management specialists should analyze carefully and adjust their plans to the requirements of new reality. A timely detection of interdependence effects between any market segments may reduce or even prevent substantial losses. It is also vitally important to maintain a cross-functional cooperation among various companies to combat modern risks.