Climate shifts – is your business continuity plan ready?

Many risk managers feel they have been in firefighting mode for the last two years, struggling to stay ahead of one crisis after another. Reporting risks is no longer enough. It is critical that risk managers are able to prepare for risks before they happen.

While new risks have emerged in recent years, traditional risks have also increased. In the last five years, insured losses from natural catastrophes have resumed a long-term growth rate of 5% to 7% annually, following a benign phase of lower annual losses in the 2012-2016 period.

In the Allianz Risk Barometer for 2024, cyber risk was cited as the top business risk globally at 36% but was closely followed by business interruption (31%). Interestingly, traditional physical risks such as natural catastrophes and fires and explosions are of increasing concern, as cited by 26% and 19% of risk managers respectively.

In fact, natural catastrophe has risen three places up the Allianz risk radar on the back of a tempestuous year. Total losses from natural catastrophes in 2023 are estimated to be more than $260bn, according to Swiss Re Institute.

The institute’s latest Sigma study shows that more than half of the insured losses for all natural catastrophes ($64bn) came from severe connectivity storms (SCSs), the umbrella term used for a range of frequently observed hazards, including tornados and hailstorms. While most of these took place in the US, they are growing fastest in Europe. Losses grew above trend for the third consecutive year in 2023, thanks in part to a number of extreme hailstorms, and are set to double over the course of the next decade.

The severity of the losses came as a shock to the industry due to the limited availability of granular exposure data and accurate SCS/hail risk models. According to Swiss Re, the data suggests that “it is time to adjust associated risk assessment”.

Meanwhile, the Allianz Barometer has noted that the increasing influence of changing climate conditions boosted the development of certain events in 2023, and natural catastrophe is now the cause of business interruption that businesses fear the most (44% of responses) after cyber incidents.

At the same time, risk managers have also had to deal with a hardening insurance market and all that brings – a rise in premiums and exclusions and a reduction in capacity and coverage. One area where the lack of capacity is conspicuous is in business interruption.

Not only has coverage declined but the likelihood of long business interruptions has increased. For example, the cost and waiting times for replacing machinery have both increased; the availability of spare parts has declined, as has the number of skilled mechanics and mechanics in general. And the lack of insurance will itself make recovery from BI much more difficult.

Business interruption concerns

The concerns around BI were evident in the extreme weather events that wreaked damage on households and business across Europe in the last 18 months. In August 2023, storm Hans caused flooding in Sweden and Norway, as did storm Babet in October, also affecting Denmark.  Meanwhile, September saw the largest landslide in Sweden since 2006, while January brought the coldest weather in Sweden for 25 years as temperatures fell to minus 43C.

The frequency, variety and severity of these weather events, especially CSCs, has caused damage to critical infrastructure, disruption to business, trade and travel and difficulties for emergency services.

It is also difficult for companies that suffer extensive business interruption from a natural catastrophe. The lack of restoration companies, insurers and other service providers was exposed for all to see by the extreme weather events of 2024, contributing to the commercial trauma experienced by so many small and medium enterprises.

These catastrophic events also showed why risk managers must try to get ahead of the crisis and how a solution like BELFOR’s RED ALERT is of critical importance in today’s market.

As one senior risk manager said: “It seems that we are always struggling, always in firefighting mode, always trying not to drown, always in the middle of the storm. We need to get ahead of the wave. We need to prepare for foreseeable challenges and risks before they happen. We need to get ahead of the wave. Only reporting risks is not enough.”

BELFOR’s RED ALERT service is structured to work alongside companies’ response plans and emergency procedures so that recovery can be more rapid and effective, and that any gaps in business continuity plans can be minimised. It also secures access to critical resources during a company’s hour of need.

• BELFOR covers entire supply chains across all continents.
• RED ALERT® clients receive exclusive access to a dedicated hotline.
• RED ALERT® clients enjoy priority status. In the event of a national disaster and increased demand, RED ALERT® clients skip the queue and get served first.
• No two businesses or even industries are alike. This is why BELFOR’s experts bring in specialist knowledge and experience of all businesses, being able to customise their services before, during and after a business interruption.
• By their nature, emergencies create uncertainty. RED ALERT® supports companies in defining their appropriate level of service, which corresponds to their prevention planning, making their business more resilient.
• The first hours following a disaster are crucial. Step-by-step protocols tailored to the client’s needs reduce the impact of any business interruption. That way, companies are ideally prepared for both minor incidents and worst-case scenarios.

In recognition of the growing risks faced by Nordic companies, BELFOR has significantly strengthened its presence in the Nordic market since its initial move into the region in 2016, with multiple acquisitions, expanding its geographical reach and services to meet customers’ needs. For example, in 2022, BELFOR joined up with damage restoration service SSG Group to expand its coverage and strengthen its service in Denmark, Norway and Sweden.