Business Interruption & Risk Management – What Did We Learn From 2022?
Over the last few years, business interruption has been a major issue in risk management. The worldwide spread of COVID-19 and the ensuing lockdowns and travel limitations had a significant consequence on many businesses, causing huge losses.
In 2022, before the world had completely recovered from the pandemic, business interruption was back in the spotlight after Russia invaded Ukraine and NATO retaliated with a slew of economic sanctions on Moscow.
According to experts, supply chain impact and cybersecurity failure are two of the risks that worsened the most from 2020 to 2022.
Andrew Tait, a veteran of the risk management industry, pointed out that we have learnt through difficult experiences that supply chains are more connected than we had initially assumed and can be exposed to various risks.
We are now aware that we must boost our aptitude for regulating supply chains proficiently and consider aspects such as critical employees, technologies, shipping paths, and customer needs.
Moreover, there is a greater requirement to consider potential scenarios that could disturb operations in new ways – for example, a blend of war, natural catastrophes, and public health crises.
Regardless of whether a business faces insurable or non-insurable losses, their profits and clients can be deeply impacted. Therefore, it is essential that companies take a proactive approach to becoming resilient and make adequate plans in the event of business interruption.
This is an issue that can not be overlooked as it can have grave consequences on the company’s revenues and its reputation.
Many organizations and their risk management teams are guilty of failing to recognize the unrecognized dangers that exist. This leads to an absence of an overall understanding of the potential ramifications of disruptions, thus resulting in poorer organizational risk outcomes.
According to Tait, a major fault in the BI exposure calculation and reporting approach – which is basically a representation of global income minus variable costs – has resulted in the current issues we face.
When we confine the BI exposure discussion and related reporting to only insurance procurement and yearly ‘allotted’ BI, it restrains the capability of the operational team to comprehend the potentially disastrous effects of real exposures.
If we do not establish a reliable way to compute and comprehend the real global effect on margin – including secondary outcomes from the loss of a single site, production line, boiler, trade route, supplier, or technology system – then organizations cannot rationally prioritize expenditure in supply chain protection.
A frequent misstep that numerous businesses make is not having an active plan in place for business continuity and disaster recovery, which results in them underestimating the magnitude and duration of the disturbances they may experience.
“Now is the time to sharpen the axe before the next real-world event,” Tait said. “Management hates surprises, and product supply chains are the lifeblood of so much of what companies do – so why are we surprised by product shortages that materially impact results?”
Companies that have experienced difficult times have the opportunity to correct their mistakes. According to Tait, businesses should focus on grasping the details of their supply chains and the factors that can influence them. Risk managers, business leaders, and the entire industry as a whole should be ready to predict risks in advance and make plans for better results.
According to this article on Insurance Business Mag, “Tate shared a sample supply chain risk planning process consisting of 10 steps”:
- Identify and document priority products/product families.
- Map supply chains, including critical suppliers/customers (to manufacturing site).
- Quantify the annualized impact of the loss of critical sites, down to individual production lines.
- Identify and catalog inventory positions, lead times, alternative sourcing strategies, parallel or redundant product standardization, key staff, technology dependencies, etc.
- Assess the potential duration of outages and restoration periods (current and best future case and then add additional time for unanticipated delays).
- Develop risk curves across a range of possible return periods.
- Document plans to prioritize action to protect – and communicate with management.
- Conduct a gap analysis and perform risk assessments to identify vulnerable sites/nodes.
- Develop appropriate plans, policies, and procedures for business continuity/resumption.
- Rinse and repeat.
Going forward, Tait anticipates more difficulties for present tenacity models – since countries are pushing towards regional uniformity rather than global interconnection. With companies depending more and more on technology to run their businesses, the danger of a disruption in the supply chain will increase and so will the costs.
He also predicted more demand for openness from customers, shareholders, and boards of directors; as well as continuous progress in tools and services to render and understand supply chains.
Insurance providers, then, are likely to award those who have a better comprehension of their exposure. This should result in improved skills in supply chain management.
“To all risk managers who want to make a difference, we urge you to partner with the operations and senior leadership to drive engagement and begin the journey to resiliency,” Tait said. “To provide a little hope – this may help offset some of the increasing risk increases we are experiencing due to global warming, shortages of critical raw materials, and dynamic geopolitical stresses.”
If you have any questions or would like more information on how your business may be impacted by BI in the coming year, please reach out to one of our licensed experts today at 905-696-9090 or simply email us at