The Russian and Ukrainian conflict has highlighted the caustic effects of war on business. Without adequate preparation and protection for your business, you could find your life’s work caught in the crossfire. With the nuclear threat posed by Russia, time is of the essence for securing your business.
By Randy Sadler, CIC Services
The possibility of a Russian nuclear attack on Europe is difficult to assess. While NATO estimates the likelihood as low, Matthew Bunn, a professor at the Harvard Kennedy School, believes there’s a 10 percent to 20 percent chance of a nuclear strike. While these odds may seem small, they are “intolerably high” when it comes to nuclear weapons, according to Bunn.
The potential impact of a nuclear strike on businesses and supply chains across the globe is not something to take lightly. Before COVID-19, many businesses were unprepared for the risk of a pandemic. Only 12% were highly prepared, according to Gartner, and the aftermath saw many businesses fail and close their doors. The risk of a nuclear strike on Europe is even more pressing and could have a far greater impact.
Understanding the potential risks and impacts of war on your business is essential for effective risk evaluation and crisis planning. In this article, we’ll explore how war can affect your business and provide tips for mitigating the potential financial impacts of a global conflict.
Banks and Supply Chain Impacted by War
An executive order from Putin and the Kremlin made it so that banks liquidating and exiting had to have their exits approved, leaving most Western banks struggling with Russian bureaucracy and the unpredictable actions of the Russian President. Société Générale, for example, lost almost $5 billion in its quick sale of holdings in Russia, despite having over $20 billion in assets in the country.
The global supply chain has been similarly impacted, with Russia and Ukraine accounting for 29% of wheat exports, 80% of sunflower oil, and 40% of barley exports worldwide, according to a report by the nonpartisan Wilson Center. With 10% of the world’s oil supply and 40% of Europe’s gas coming from Russia, the war has had a major impact on industries such as construction, agriculture, and automotive manufacturing.
The effects have been particularly damaging for small businesses in and around Ukraine, with up to 42% closing, 86% reducing or halting activity, and nearly 5 million jobs lost due to the conflict. For these businesses and many others, the war has been a nightmare comparable to the challenges posed by the COVID-19 pandemic.
As supply chains are disrupted, and industries struggle to adapt, it’s clear that businesses of all sizes must be prepared for the unexpected. By anticipating potential risks and having contingency plans in place, companies can better weather the impacts of conflict and other disruptions. In the face of global uncertainty, proactive risk management is more important than ever.
Protecting Your Business from Crisis
Risk is an inevitable part of running a business, but it doesn’t have to be the end of your business. Whether you’re a business owner or a decision-maker, it’s crucial to continually evaluate both internal and external risks to your organization and plan accordingly.
Without proper risk management, businesses are more likely to face unexpected crises or disasters. According to FEMA, 90% of companies close within two years after a disaster. But by being proactive and having a solid risk management plan in place, your business can not only survive a crisis but also emerge even stronger.
Whether it’s through implementing cybersecurity measures, utilizing employee training programs, or developing an emergency response plan, taking a proactive approach to risk management can help safeguard your business from unexpected disruptions and ensure its long-term success.
Insuring Against the Aftermath of a Nuclear Strike
Sure, there may be some types of supply chain insurance policies that could provide limited coverage for losses resulting from a nuclear strike, such as those that provide coverage for damage caused by acts of war or terrorism. It’s important to note, however, that such policies would likely have limitations and exclusions, and the specific terms of coverage would need to be carefully reviewed to determine the extent of coverage in the event of a catastrophic event.
Overall, while supply chain insurance can provide some protection against certain risks, it is not a comprehensive solution for mitigating the financial impact of a catastrophic event such as a nuclear strike.
Captive insurance is a form of self-insurance that allows businesses to set up their own insurance company to cover specific risks. In the event of a catastrophic event such as a nuclear strike, a captive insurance company can provide a source of funding to help cover losses resulting from the disruption to a company’s supply chain.
Captives allow businesses to retain more control over their insurance coverage and reduce overall insurance costs by providing coverage for risks that may not be covered by traditional insurance policies. The captive insurance company can also be structured to provide coverage specifically tailored to the risks that are unique to the business, including risks associated with its supply chain.
In the event of a nuclear strike impacting supply chains, a captive insurance company could provide coverage for losses resulting from damage to suppliers’ or customers’ properties, transportation system disruptions and other interruptions that could impact a company’s ability to conduct business as usual. Another benefit of captive insurance is that it can accumulate profits over time, which can be used to fund future claims or provide a source of funding to help cover losses resulting from a catastrophic event such as a war or nuclear strike.
Overall, while insurance can provide a source of funding to help cover losses resulting from a crisis, it should be just one part of a comprehensive risk management strategy that includes contingency planning, diversification of operations and supply chains and other measures to reduce the overall risk exposure of the business.
If COVID-19 taught us anything, it’s that even the most seemingly unlikely of threats can happen and that it’s imperative for businesses to be prepared—or risk everything.
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