Fire and explosion, Shortage of skilled workforce, Market developments and Macroeconomic developments: Risks ranked 7-10 in this year's Risk Barometer.
This article is part of the Allianz Risk Barometer 2022
The most important business risks for the next 12 months and beyond, based on the insight of 2,650 risk management experts from 89 countries and territories.
7. Fire, explosion
AGCS analyzed over 470,000 insurance industry claims in over 200 countries with which it was involved between July 2013 and July 2018. The largest single cause of loss for businesses was fire/explosion (excluding wildfires), causing in excess of $15bn worth of damages during this period. It is little wonder then that fire, explosion has been a staple of the top 10 risks in the Allianz Risk Barometer for the past decade. In many cases it’s not even the material damage of such an incident that results in the biggest losses, although this is often costly. A major fire or explosion can prevent companies from operating for some time and such incidents are the most frequent drivers of business interruption (BI) insurance claims.
Allianz Risk Barometer 2022
Fire, explosion: → Rank 7 (17%)
Ranking history:
2021: 7 (16%)
2020: 6 (20%)
2019: 6 (19%)
2018: 6 (20%)
2017: 7 (16%)
Overall, from the claims data analyzed by AGCS, BI losses caused by fire/explosion incidents amounted to an average of over $6.5mn per incident – nearly a third more than the actual property damage caused directly by such fires ($4.4mn). While risk assessment continues to evolve, it is unlikely that such risks can ever be completely eliminated. Nevertheless, regularly assessing and updating prudent fire mitigation practices, including preventative measures, fire extinguishing methods and contingency planning remain essential for all businesses to lower the risk of loss from an incident.
9. Shortage of skilled workforce
Attracting and retaining skilled workers has rarely been more challenging as 69% of companies globally report talent shortages – the highest in 15 years, according to a ManpowerGroup survey [1], ensuring shortage of skilled workforce is a new entry in the top 10 of the Allianz Risk Barometer. As economies reopen around the world after lockdowns, reports of employers being unable to find the workers they need have become increasingly common. Covid-19 has been hugely disruptive to the labor market, exacerbating existing issues caused by older employees retiring and the already changing needs and expectations of potential employees, while bringing new challenges such as skilled workers who want flexibility over when and where they work and who are prepared to leave existing jobs to achieve this.
Allianz Risk Barometer 2022
Shortage of skilled workforce: ↑ Rank 9 (13%)
Ranking history:
2021: 13 (8%)
2020: 6 (9%)
2019: 6 (9%)
2018: 6 (6%)
2017: 7 (6%)
According toestimates [2], as of December 2020, the global talent shortage amounted to 40 million skilled workers worldwide. By 2030,Korn Ferry estimates[3] that this could reach more than 85 million people, resulting in the loss of trillions of dollars in economic opportunity for companies. Knowledge-intensive industries such as financial services, technology, media, telecommunications and manufacturing are among the industries that are predicted to be most affected, while Allianz Risk Barometer respondents rank talent shortage as a top five risk in the engineering, construction, real estate, government, public service and healthcare sectors, and as the top risk for the transportation sector.
8. Market developments & 10. Macroeconomic developments
Market (8) and macroeconomic (10) developments both drop down the rankings in 2022. Allianz and Euler Hermes Research highlight some of the issues impacting the landscape… 2021 was an extreme year that can best be described by the “ketchup bottle effect”: after the lockdowns, demand for goods and services exploded, overwhelming supply capacities and resulting in clogged supply chains, material and labor shortages, as well as rising prices. The consequence: a roller coaster growth path with strong, demand-driven quarters followed by weak quarters with stagnating or even declining growth.
Allianz Risk Barometer 2022
Market developments: ↓ Rank 8 (15%) & Macroeconomic developments: ↓ Rank 10 (11%)
Ranking history Market developments:
- 2021: 4 (19%)
- 2020: 5 (21%)
- 2019: 5 (23%)
- 2018: 4 (22%)
- 2017: 2 (31%)
Ranking history Macroeconomic developments
- 2021: 8 (13%)
- 2020: 10 (11%)
- 2019: 13 (8%)
- 2018: 11 (9%)
- 2017: 6 (22%)
2022 is unlikely to be much more stable. Covid-19 is not over and the Omicron variant might render herd immunity as elusive as ever: the constant changing between tightening and loosening restrictions may continue. Supply chain tensions will certainly ease gradually but a return to normal trade flows will take its time. New Covid-19 outbreaks could easily plungentrade into renewed chaos, in particular as China, still the linchpin for most global supply chains, will continue to follow its zero-Covid policy, implying repeated lockdowns.
But in one important aspect, 2022 will be different: fiscal policy will be much less accommodating; there will be no further pay checks for households. In some countries, the fiscal deficit is set to decline by a whopping five percentage points. This contraction, or “fiscal cliff” could become a big drag on growth, in particular if the gap is not filled by private spending and investing (from excessive savings accumulated during lockdowns).
The “hiking cycle” and market movements
Capital markets were firmly under the spell of monetary policy in 2021. Fueled by ample and cheap liquidity and shrugging off repeated lockdowns, supply bottlenecks and rising inflation, markets knew only one direction: up and up, climbing from one record to the other. 2022 will be different as central banks respond. However, the “hiking cycle” is likely to be a protracted and shallow process. The US Federal Reserve (Fed) will end its bond purchases soon and then follow swiftly with interest rate hikes. Key interest rates may reach the 2% mark again, but hardly move beyond. The Fed is unlikely to raise rates above the level that prevailed before Covid-19.
This is even truer for the European Central Bank (ECB). Bond purchases will be tapered this year but will continue well into 2023. Interest rates will also rise again at some point – but hardly above the zero line. The first increase in deposit rates is not expected until 2023, and zero could be reached again by 2025. Why are central banks so timid? Exiting expansionary monetary policy is much harder than opening the liquidity floodgates. Against the backdrop of elevated markets at stretched valuations, central banks face a delicate balancing act. Otherwise, a market crash looms, with harsh consequences for growth and jobs. But even if central banks pull off the trick – a big if, indeed, given the unforgiving inflation development – markets are in for a much rougher ride in 2022 than in 2021. Volatility is set to increase considerably and repercussions of the monetary turnaround will be felt around the globe, with weaker emerging markets coming under severe strain.
References
[1] ManpowerGroup, Employment Outlook Survey Q3, 2021
[2] DAXX, The Software Developer Shortage in the US and the Global Tech Talent Shortage in 2022, January 5, 2022
[3] Korn Ferry, The $8.5 Trillion Talent Shortage
Pictures: Adobe Stock, Shutterstock
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