3 Ways to Manage Business Interruption During Uncertain Times

3 Ways to Manage Business Interruption During Uncertain Times
April 27, 2023 6 mins

3 Ways to Manage Business Interruption During Uncertain Times

3 Ways to Manage Business Interruption During Uncertain Times Hero Image

With increasing global uncertainty, businesses should focus on emerging threats and decide how to best address them.

Key Takeaways
  1. Business interruption is a top risk for companies, with causes recently growing in both scope and magnitude.
  2. Climate change, geopolitical unrest, and increased reliance on digitization are some of the most common emerging threats.
  3. The most well-prepared leaders take a forward-looking and systematic approach to business risk.

In a world that is still coming to grips with the inflation crisis, geopolitical fallouts and extreme weather events, business leaders continue to expect the worst. According to Aon’s 2022 Executive Risk Survey, nearly 80 percent believe that the global economy will tip into recession in 2023. All these factors combined land Business Interruption (BI) as a top risk for a myriad of industries , including hospitality, travel, leisure, energy and life sciences.

bi-risks-facing-leaders-today-diagram

Source: Aon’s Executive Risk Survey 2022

 

How can firms stay ahead of the curve? It’s important to be aware of the constantly evolving landscape and resulting risks this will pose to your business. This article takes a closer look at the most common causes of BI and how to manage this volatility with confidence and strength.

Emerging BI Threats

Businesses can experience interruption for a variety of reasons. The causes are growing, not just in scope, but also in magnitude. One of the top trends inflating BI losses is more reliance on digitization, just-in-time management philosophies and lean inventories.

Threat #1: Increasing Reliance on Digitization

While digital supply chains and business processes facilitate greater efficiency and transparency, they become a risk if critical data or technology is suddenly unavailable — whether through power outage, fire, cyberattacks or other events. This may result in the loss of business intelligence as well as key sales and delivery channels. Even further, it can trigger a cascade of interconnected contingent business interruption (CBI) losses for other businesses that rely on the same data, system, or cloud service.

Threat #2: Climate Change

Extreme weather events are growing in frequency and severity, blocking critical manufacturing processes, making waterways unnavigable, triggering power outages and more. The first six months of 2022 were marked by large-scale disasters on nearly every continent that led to above-average losses for the insurance industry. Yet less than half of the total losses were covered by insurance.

Threat #3: The Evolving Workplace

Workforce fluctuation — which many businesses experienced at the start of the pandemic — remains a continued source of interruption, with workforce trends such as the Great Resignation, Quiet Quitting, and hybrid work-from-home practices forcing employers to rethink their human capital and workforce resilience strategies.

Threat #4: Political Violence

Political violence is another BI risk that should not be underestimated. Beyond the immediate challenges of denial of access to property and workforce shortages, instances such as 2019-2020 Hong Kong social unrest, the 2021 Myanmar coup and the 2022 Russo-Ukraine conflict can lead to property damage, decreased footfall and loss of revenue for extended periods. Businesses will need to better understand the complex dynamics that are behind these changing geopolitical risks and build resilience into their operational posture.

Threat #5: The COVID-19 Pandemic

Even though other, more immediate threats have taken precedence, COVID-19 remains unpredictable, with potential new strains and mutations adding uncertainty to an already challenging landscape. In fact, Aon’s Executive Risk Survey found that nearly two-thirds of global business leaders say COVID-19 has exposed new risks and vulnerabilities that require a shift in mindset for the future. The survey also found that forward-thinking leaders are spending 15 percent more time preparing for future pandemics.

49%

Proportion of  well-prepared leaders who have slowed or frozen hiring to respond to economic slowdown

Source: Aon’s 2022 Executive Risk Survey

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How to Position Your Business for Success

With recession looming and fears of inflation and financial crisis dominating global boardrooms, how can leaders make better decisions and position their business for success?

bi-risks-facing-leaders-today-diagram
1. Build Enterprise Resilience

Leaders who fail to prepare for BI risks may underestimate the complexities of returning to business as usual, which can take months and involve significant costs. It is also easy to overlook “grey swan” or long-tailed risks, which are rare and difficult to predict. As shown by the COVID-19 pandemic however, leaders had the most success when they acknowledged the seriousness of grey swan events, fostered a culture of agility, and invested in contingency planning and testing.

Confident leaders know that now is not the time to put the brakes on capital investments or lose sight of long-tailed risks such as rising social inequality, cryptocurrency, and disruptions to the market. With the business landscape in a state of flux for the foreseeable future, building enterprise resilience is quickly becoming a key competitive advantage.

2. Manage and Transfer Risk

No longer the sole responsibility of the risk management department, managing risk — quantifying it, conducting assessments, and limiting it — has become an enterprise-wide issue. Protecting the balance sheet from a wider range of BI risks requires business unit leaders to anticipate loss scenarios, review their exposures, and identify potential overreliance on critical customers, partners, and supply chains.

Risk management solutions and analytical tools can go a long way to provide key data for planning purposes, but confident leaders understand the value of engaging external consultants to help improve their risk management practices. In fact, our analysis finds that very prepared leaders are nearly twice as likely to say they value the counsel of an external advisor in improving their company’s ability to make good decisions and deal with risk.

Equipped with data-driven insights, businesses can acquire specialized BI coverage that is tailored to its short- and long-term strategy. Companies with especially complex business models can mix, combine, and align the following risk transfer options:

  • Traditional BI coverage for loss of revenue or profit at the affected location
  • Interdependency BI coverage to cover knock-on internal effects within the organization, both at the affected location and at other locations
  • CBI coverage for impact on revenue or profits resulting from a covered event that has impacted a third-party supplier or customer
  • Ancillary or additional coverage for increased costs or inability to enter the business premises due to a covered event
3. Embrace Risk

Despite the challenging risk landscape, the most innovative leaders are the ones identifying opportunities alongside the threats. As many as 90 percent of well-prepared leaders are equipped to address risk. It is not just a question of survival, but an opportunity to introduce new strategies, bring change to the sector, and open doors to future growth.

For more information on BI risks, download our full 2022 Executive Risk Survey Report.

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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62%

of very prepared leaders see more value in external sources for better decision-making

Source: Aon’s 2022 Executive Risk Survey

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