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Business risks 2013: German industry concerned about quality deficiencies

27/01/2013 23:34 (443 Day 16:50 minutes ago)

The FINANCIAL -- One particular concern unites companies around the world:  their operations come to a standstill due to force majeure.

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Business and supply chain interruption, natural disasters and fire and explosion are the key risks faced by companies in 2013, according to a new Allianz survey conducted in 28 countries. Regulatory or market-related changes also represent important business risks. As Allianz said, in Germany, industrial companies worry about quality deficiencies and a loss of reputation, while mid-sized enterprises are most concerned about talent shortage and financial resources.

The “Allianz Risk Barometer 2013” survey was conducted at the end of 2012 by Allianz Global Corporate & Specialty (AGCS), the Allianz Group’s center for corporate and industrial insurance. The survey gathered opinions from 529 corporate and industrial insurance experts from across the Allianz Group on the most important risks that companies in particular regions and sectors face in 2013.

“Allianz has been a reliable partner to businesses all over the world for many years. We have in-depth knowledge about the risks that businesses face and we also know which issues they may be underestimating,” says Clement B. Booth, Member of the Board of Management of Allianz SE. “Today’s global companies operate in a complex risk landscape that features traditional risks like fire as well as ultra-modern risks such as supply chain interruptions and cyber crime,” notes Axel Theis, CEO of AGCS.

The Allianz experts rate business and supply chain interruptions as the biggest business risk (46 percent of responses). Choosing to run lean global supply chains to reduce costs, many companies lack alternative suppliers. “The flooding disaster in Thailand showed that business interruption at a key supplier can cause a ripple effect felt across an entire industry,” explains AGCS property insurance expert Volker Münch.

 

Losses caused by natural disasters on the rise -- In many cases, business interruption is caused by natural disasters, the second-largest business risk (44 percent of responses). Although 2012 was a relatively moderate year for natural catastrophes – with the exception of Hurricane Sandy – this is no reason to sound the all-clear: “Insurance claims caused by natural disasters have risen 15-fold over the past 30 years. And they will continue to grow because of the increase in insured assets in Asia, in particular, and the ongoing shift towards development in high-risk coastal regions,” explains Markus Stowasser, meteorologist at Allianz Re. Europe, too, can expect more frequent local weather extremes such as heavy rainfall.

One “age-old risk” features surprisingly prominently on corporate agendas: fire and explosion was named as the third-most important global business risk. Fires are relatively rare, but can cause high property and business interruption claims especially in manufacturing industries. AGCS’s loss statistics speak for themselves: Of seven large industrial property losses exceeding 10 million euros each in 2012, six were caused by fire. “Companies shouldn’t compromise on high fire protection standards due to economic pressure,” stresses Paul Carter, Global Head of Risk Consulting at AGCS.

Concerns about quality seal “Made in Germany” -- The Allianz insurance managers surveyed in Germany also identify business interruption and natural disasters as the two top risks for corporate clients. But German companies’ third-biggest concern – particularly among large industrial enterprises – is quality deficiencies and serial defects. “The “Made in Germany” stamp remains an important sign of quality in industries such as automobile manufacturing and engineering. For this reason, quality problems and design defects affecting large production series pose a serious risk for many German companies,” explains Thomas Meschede, Head of Risk Consulting at AGCS Germany. Closely related to this is the fear of a loss of reputation, which also ranks among the top 10 business risks for large German enterprises.

The picture looks somewhat different among German mid-sized companies: Here, talent shortage and an aging workforce are regarded as particularly critical issues. “Mid-sized businesses lack the employer appeal and the development potential of larger brands or DAX-30-companies, which are more likely to attract the best talent,” says Michael Krause, who is responsible for corporate liability at Allianz Versicherungs AG. Financing issues also cause mid-sized companies considerable headache as they have less access to bank loans and capital markets. In addition, Allianz experts regard fraud and corruption as more critical issues for mid-sized companies.

Companies are poorly prepared for IT failures and power outages -- According to the Allianz experts, businesses take some risks very seriously but widely underestimate others. For example, IT failures – whether self-inflicted by human error or due to cyber crime – can entail high economic losses in an increasingly digitized economy. Nonetheless, just 6 percent of Allianz experts think that their clients are really aware of this risk. Similarly, the risk of supra-regional power blackouts features on few companies’ risk radar. “Reliability of power supply will decrease in the future due to aging infrastructure and the lack of substantial investments,” explains Michael Bruch, Head of R&D Risk Consulting. If a blackout occurs, the impacts are much higher today than 10 to 15 years ago due to the high dependence on information and communication technologies and the lack of preparedness on the part of businesses.

 

 

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