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Building business resilience in a new risk landscape

Braving the unknown and anticipating risks before they develop into real-world problems is nothing new for businesses. But over the past few years, the nature and scope of risks companies must weigh and prepare for have expanded significantly. As illustrated in our sigma report, several factors have resulted in today's complex and interdependent global supply chains, rendering more operations susceptible to interruptions.

These trends will require corresponding shifts in the way enterprises assess and prepare for the unexpected. While attention has tended to concentrate on balance sheets, there is an evident rise in focus on non-financial risks, particularly those related to technology, climate change, and trade networks. Managing this emerging and rapidly evolving risk landscape is key to fostering and sustaining business resilience for the long term.

Managing this emerging and rapidly evolving risk landscape is key to fostering and sustaining business resilience for the long term.

As digitalisation accelerates, threats from cyberattacks are growing every day. Data1 shows that more than 70 major cyber incidents were recorded in the first half of 2021; many of them inflicted significant economic losses and brought myriads of operations to a halt. One recent example is the JBS cyberattack - the world's largest meat processing company had to pay USD 11 million in ransom to bring their plants in Australia, Canada and the US back online. 2

Here in Asia, we’ve seen first-hand how the concentration of supply chains threatened production across industry sectors. Thai floods a decade ago is a case in point. At the time, approximately 19% of Thailand's manufacturing firms were integrated into global production networks. The confluence of the monsoon season and severe rainfall in 2011 resulted in heavy flooding across Thailand, disrupting the production of everything from cars to computer disk drives worldwide.3

Companies must also brace for more frequent disaster events that could jeopardise critical infrastructure and facilities. The astounding scale of the recent German floods and the similarly devastating flooding in China and Japan are constant reminders of the impact from climate change. Our research shows that last year APAC accounted for nearly 40% of the USD202 billion in economic losses caused by natural and man-made disasters globally - and only a fraction of those losses were covered by insurance. This protection gap could hinder businesses from restoring operation quickly and threaten the region’s prosperity.

What a changing environment means for corporates

All this adds up to a challenging situation, but there are multiple steps both businesses and insurers can take to create a more resilient business ecosystem. Companies should start with changes to mindsets and processes. In the current circumstances, risk management can no longer be confined to a periodic checklist or box-ticking exercise with a short-term view. It must become a proactive and continuous process. In taking a longer-term perspective, and extending risk engineering across its supply chain, risks on several frontiers could be monitored, analysed and acted on with the help of emerging technologies and richer data resources.

Leveraging on risk engineers' vast experience, companies can effectively benchmark their risk mitigation measures and minimise potential exposure.

Insurers can contribute by bringing their deep risk knowledge and industry expertise to help identify, assess and mitigate the risks facing corporates today. Leveraging on risk engineers' vast experience, companies can effectively benchmark their risk mitigation measures and minimise potential exposure. Risk engineering is a critical component of a comprehensive risk strategy and essential for companies to assess the right level of protection they need, which could be particularly valuable in a hardening insurance market.

The testing environment in the past two years has made clear the importance of adaptability. For insurers, it means to be more agile and creative in addressing clients' needs. The remote site survey is one example. During times of disruption when access to a physical site is restricted, remote surveys done through digital platforms make continued risk mitigation possible.

To conduct accurate risk assessments and predictions of forces like climate change impact, insurers can also employ their technical capabilities to develop new tools. Our risk engineers use new techniques such as drones and 3D modelling to generate more accurate data and provide corporates better understanding of their flood risk exposures.

In addition, robust global analytic capabilities can facilitate a forward-looking approach to risk management that anticipates rather than reacts to emerging threats. Swiss Re Corporate Solution’s Climate Risk Solutions for Corporates is just one example of how technology and data can quantify the impact of physical climate risks now and in the long-term future. We can also support corporates by combining our technical knowledge with their areas of expertise to tailor solutions that meet specific industry needs and contexts. Take the ExTool we’ve created to estimate losses due to property damage arising from vapour cloud explosions in the oil and petrochemical sector or the risk benchmarking we provide for products used by chemical producers and automakers.

Partnering through the challenges

A complex and volatile environment makes communication and education more crucial than ever. We’ve redoubled our efforts to provide relevant technical advice, timely loss prevention guides and virtual risk management solutions to mitigate clients' risks from disaster events. Technology can be a major enabler in this respect. Our recent experience with insight-sharing webinars and customer engagement forums shows that virtual platforms provide a strong foundation for outreach and engagement when travel and in-person events aren’t always options.

Overall while acknowledging the risk environment has shifted in a challenging way for businesses, let's consider the opportunities it brings. Technology, data and collaboration are giving us the capabilities to better understand and address not just the vulnerabilities that affect companies, but the issues we all face as a society. Developing this understanding is key to building resilient businesses and economies and remaining competitive and sustainable regardless of what comes next.

1 https://www.csis.org/programs/strategic-technologies-program/significant-cyber-incident
2 https://www.bbc.com/news/business-57423008
3 https://www.swissre.com/institute/research/sigma-research/sigma-2020-06.html

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