While organisations are recovering from business interruption and supply chain disruption brought by the Covid-19 pandemic, new emerging disruptions and risks are facing them post pandemic, said WTW recently.
According to WTW’s Global Supply Chain Risk Report 2023, new emerging disruptions and risks include the followings:
Economic risks: Economic uncertainty emerged as the leading factor underlying supply chain risks, ranked by 32% as being among their top concerns. Inflation was also named among the leading contributors at 26%.
Cyber risks: Growing digitalisation and automation of production and processes increase the risks of cyber-attacks on suppliers. Survey respondents believed cyber risks to have the most profound effect on supply chains, rated by 34% as a high impact and 54% as medium.
Sustainability: 83% of respondents agreed that sustainability of supply chain is a key goal in risk management. More than half (54%) place climate change and environment among the top global trends affecting their supply chain risks.
Geopolitics: More than a third (35%) said geopolitical factors were among the top global trends affecting their supply chain risks.
Pandemic: 60% of respondents continue to put pandemics among the top global trends affecting their supply chain risks. Legacy issues, including continuing shortages of raw materials (39%), logistics and warehousing (35%), components (33%), and drivers (28%) were all among the top supply chain factors that will impact businesses over the next two years.
From multiple geopolitical tensions to ongoing inflationary pressures, global uncertainty is adding complexity to businesses just as they are recovering from the supply chain crisis, said Luke Ware, Head of Corporate Risk & Broking, Asia, WTW.
“Businesses will now be in catch-up mode against a disruptive environment, facing challenges such as switches in sourcing models, rapid on-boarding of alternate suppliers and issues impacting production and souring of materials,” he noted.
In complex supply chains with hundreds or even thousands of moving parts, risk can come anywhere along the chain, WTW pointed out.
Particularly in highly specialised sectors, companies can be dependent on a single supplier for an ingredient or key component that is critical to production, the firm said.
Even the loss of one can have a major disruptive impact if an alternative is not readily available, the firm added.
This may explain why almost half (48%) of the respondents said that upstream risks were a great threat to their businesses, as compared to downstream risks (19%), such as logistics and shipping, WTW noted, adding that this sentiment was particularly high in the semi-conductor (54%) and renewables (53%) sectors.
While the large majority of businesses recognise that insurance has a role to play, insurance to cover purely financial supply chain losses provides only a wafer-thin patchwork of protection, Ware said.
Major coverage gaps were exposed by the pandemic, and companies remain un- or under-insured, he added
According to the WTW survey, fewer than one in five companies have specific policies to cover supply chain business interruption.
Businesses in all sectors need to transfer their significant exposures, while ensuring their business interruption insurance is regularly reviewed and adequately insured to achieve true resilience, Ware advised.
The survey was conducted late last year among 800 C-suite officers and heads of risk, supply chain management, and logistics at companies with revenues greater than US$250 million in the life sciences, semiconductors, food beverage & agriculture, logistics, complex manufacturing, construction, energy, and renewables sectors, including companies in Asia Pacific, said WTW.
Recent supply chain disruptions
Part of the survey results highlighted how recent supply chain disruptions have increased the importance of business interruption insurance to senior decision makers, WTW pointed out.
- 65% of respondents said supply chain-related losses were higher or much higher than expected over the past two years, although 58% said the sales impact was short-term.
- 83% have made supply chain changes, including 18% that completely transformed their approach. 58% plan to make significant changes over the next two years.
- 73% said supplier unwillingness to share commercial information makes full supply chain transparency difficult to achieve.
- 89% believe insurance of supply chain risks is “mission critical” or “necessary,” but 80% said their lack of coverage poses a serious challenge.
- Only 17% of respondents have specific insurance to cover supply chain business interruption risks, but 53% believe it is covered by other insurance.