…By implementing robust mitigation strategies and collaborating with key stakeholders, retail and wholesale companies can effectively address these risks and ensure their long-term success.
Business interruption is the primary concern for the retail and wholesale sector in 2024, according to the Allianz Risk Barometer. It is followed by Natural catastrophes (31%), Cyber incidents (25%), Fire, explosion, and Macroeconomic developments (both with 20%). The report, based on insights from over 3,000 risk management professionals and business leaders, highlights the growing importance of addressing these risks to ensure business continuity and safeguard against potential disruptions.
The retail and wholesale industry faces various business interruption risks, including supply chain disruptions, natural disasters, and economic downturns. The sector is reliant on supply chains for critical products and services, which is why business interruption and supply chain disruption remain at the forefront of risk. The industry also operates with supply chains that have extensive geographic footprints. Covid-19 and the resulting disruption to supply chains have 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.
According to the Allianz 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%).
Natural catastrophes such as hurricanes, floods, and earthquakes, which can disrupt operations, damage infrastructure, and impact supply chains are some of the significant risks affecting the industry. Total economic losses from nat cat in 2023 are estimated to be $260bn, according to analysis by Swiss Re. A high number of low-to-medium-severity events added up to insured losses that will exceed $100bn for the fourth consecutive year, with severe convective storms (SCS) as the main contributor. Often referred to as a ‘secondary’ peril, SCS resulted in insured losses that reached an all-time high of $60bn in 2023 – almost 90% more than the previous five-year average of $32bn.
The industry faces increasing cyber incident risks as digitalization and online transactions become more prevalent. The recent surge in ransomware attacks has resulted in a staggering 50% increase in insurance claims activity compared to 2022. Hackers are now targeting IT and physical supply chains, launching mass cyber-attacks, and devising new methods to extort money from businesses. Consequently, early detection and response capabilities and tools have become increasingly crucial.
The sector confronts fire and explosion risks primarily in its physical store locations, distribution centers, and warehouses. Although fire risks are well understood and typically well risk-managed, fire remains a significant cause of business interruption (BI) and supply chain disruption, especially where critical components are concentrated geographically and among a small number of suppliers. According to Allianz Risk Barometer respondents, it is the third top cause of business interruption they fear most (after cyber incidents and natural catastrophes). Allianz Commercial analysis of more than 1,000 BI insurance claims over the past five years (worth US$1.3bn+) shows it is the most frequent driver of these claims and accounts for over a third by value (36%).
Regularly assessing and updating prudent fire mitigation practices, including preventative measures, fire extinguishing methods and contingency planning remain essential for all businesses to lower the risk of loss from an incident.
The retail and wholesale industry also faces macroeconomic development risks such as economic downturns, inflation, and fluctuations in consumer spending patterns. According to Allianz Trade, global business insolvencies are set to record a third consecutive rise in 2024. After a small rebound in 2022 (+1%) and an acceleration in 2023 (+7%), insolvencies should jump by +8% this year.
The recession in corporate revenues is gaining traction amid lower pricing power and weaker global demand: in 2023, the revenue recession was broad-based across all regions for the first time since mid-2020. This combined with continued high costs is squeezing profitability. As a result, liquidity positions are worsening fast and are not likely to improve before 2025. The most vulnerable corporates and sectors such as retail and wholesale are caught between a rock and a hard.
Mitigation strategies for retail and wholesale companies to address business interruption risks, natural catastrophes, cybersecurity threats, fire incidents, and macroeconomic challenges include implementing robust contingency plans, disaster preparedness plans, cybersecurity measures, fire prevention measures, and diversifying product offerings. Collaboration with suppliers, logistics partners, industry peers, and stakeholders is emphasized for sharing best practices and coordinating response efforts. Proactive risk management and resilience-building measures are deemed essential for maintaining operational continuity, ensuring safety, protecting assets, and sustaining competitiveness in a rapidly evolving business environment.
“Allianz Risk Barometer highlights the critical need for the retail and wholesale sector to prioritize risk management and resilience-building efforts,” said Geoff Tanton, Head of Property and MidCorp at Allianz Commercial. “Business interruption risks, natural catastrophes, cyber incidents, fire and explosion incidents, and macroeconomic developments pose significant threats to the sector’s operational continuity and financial stability. By implementing robust mitigation strategies and collaborating with key stakeholders, retail and wholesale companies can effectively address these risks and ensure their long-term success.”