Page 103 - Risk Report 2024

7. Energy 8. Logistics

Power supply failures would disrupt businesses (downtime, The sector requires digital supply chain resilience more
transaction delays, data loss), increase operating costs so than physical logistics. Third party physical risk remain
(including alternative power sources), and affect customer for institutions who transport currency (with insurers that
satisfaction; all negatively affecting bottom-line revenue and underwrite cash in transit exposed to theft and robberies).
margins. Asset quality risks/pressures from load shedding on Customers’ business interruption due to failing supply chains or
economic activity have a delayed effect on banks’ earnings transport interruptions impacts the sector by increasing credit
and asset quality. Users of financial services may experience risk, particularly for retailers and manufacturers. Disruptions
difficulties accessing banking services, conducting transactions, can also lead to increased cargo damage and business
and managing their finances during power outages, exacerbating interruption claims.
financial exclusion and vulnerability.

9. Food Security 10. Climate Change
Food insecurity can lead to increased food prices, reduced ESG-related criteria increasingly influence client and investor
consumer spending, and heightened financial insecurity. decisions. The sector is increasingly challenged by ESG
Lending institutions may face credit risk management regulations with tougher disclosure and reporting rules.
challenges as borrowers struggle with cash flow and contractual Inadequate incorporation of disclosure of ESG information,
repayments. Users of financial services may experience reduced greenwashing, and immature ESG practices have negative
purchasing power, and reliance on credit to meet basic needs, consequences for sector entities, including investigations,
leading to higher debt levels and financial vulnerability. The fines, penalties, and reputation damage. Increasing extreme
risk impacts economic stability, as agriculture is a crucial part weather and climate change claim frequencies and severities
of the real economy, contributing to employment and GDP. strain insurers' capital and require recalibration of risk models
Financial institutions face higher incidences of loan defaults and premium structures, while widening the protection gap,
and insurance claims as farmers and agribusinesses struggle as more assets become uninsurable or challenging to cover,
with increased costs and reduced outputs caused by water and leaving policyholders more vulnerable. Extreme weather events
energy issues. disrupt business operations, infrastructure, and supply chains,
leading to financial losses. Transitioning to a low-carbon
economy and implementing climate mitigation policies require
entities to adapt business models, invest in renewable energy,
and navigate regulatory changes, which impact profitability and
competition. Financial services users may face higher insurance
premiums and more costly financial services, exacerbating
financial vulnerability and social inequality.

11. Technology 12. Skills

The risk of disruption to digital supply chains and cloud The sector remains exposed to talent shortages (especially for
platforms due to cyber incidents remains material for the digital technologies and big data) exacerbated by an education
sector. Digital and innovative service delivery increases system that fails to equip people with skills to deal with
customer service speed and decreases paperwork (whilst slow Industry 4.0, thus impacting the sector’s growth. The skills gap
response times create an artificial barrier for accessing financial hinders innovation, adaptation to market changes, regulatory
products). Business interruption, albeit insurable, represents compliance, operational efficiency, and defences against fraud
material financial and business risks for insurers. Digitalisation and cyber risks, limiting the adoption of new technologies
has deepened interconnections and dependencies within the and global competitiveness. Furthermore, failing to educate
sector and with 3rd party infrastructure and service providers. customers on the use of digital banking technologies to
IT outages can result in significant business interruption costs access quality financial products and services, understand a
and greater operating expenses to deal with data breaches, large array of complex financial products, and make informed
customer redress, consultancy costs, loss of income, regulatory financial decisions, will impact firm performance and hamper
fines, reputational damage, share price impacts, and liabilities. financial inclusion. The sector must partner with education
AI and disruptive technologies, while driving innovation, bodies to update curricula, invest in education, and support
introduce complexities in data management, model risks, STEM education.
decision biases, and ethical concerns. Smaller financial service
providers may lack the resources and expertise to mitigate
cyber threats, leaving them exposed to the same consequences,
but at a higher comparative impact.