AI and supply chains create new pathways for systemic stress, LSE and Swiss Re Institute find

Artificial intelligence and increasingly interconnected supply chains are creating new pathways through which systemic risks can spread across the global economy, according to new research from the Swiss Re Institute and LSE.

Analysis of 91 Fortune-100 companies found 24% more links between reported risks than in 2019, with AI and supply chains emerging as key points of connection.

The findings point to a broader shift in systemic risk as threats increasingly interact across financial, digital, natural-hazard and socio-economic systems. The severity of the next systemic crisis may depend less on the size of the initial shock than on where it hits and how widely its effects spread.

Growing dependence on common suppliers, technology platforms and critical infrastructure means disruption in one area can increasingly cascade into seemingly unrelated parts of the economy.

Jérôme Haegeli, Group Chief Economist and Head of Swiss Re Institute, said: "Interconnected risks leave less room for error, while governments in many advanced economies have less room to respond. High debt and constrained policy buffers mean resilience cannot start when a crisis hits – it has to be built beforehand, by reducing critical dependencies, strengthening buffers and preserving the capacity to transfer risk."

Ivan Gonzalez, Chief Executive Officer of Corporate Solutions at Swiss Re, said: "A company may look diversified until you discover that its suppliers, technology providers and customers depend on the same infrastructure. One disruption can therefore affect more parts of a business than expected. Understanding those dependencies may help companies reduce concentrations, strengthen resilience and decide which risks they can absorb and which they need to transfer."

AI could change how the next systemic crisis unfolds

AI risk reporting has broadened beyond the technology sector, with the share of companies reporting AI and new-technology risks increasing by around 30% between 2019 and 2026. These risks now encompass industries including retail, airlines, pharmaceuticals and food.

If companies and financial institutions increasingly rely on common technologies and similar AI models, stress could trigger faster and more synchronised reactions.

Jón Daníelsson, Director of the Systemic Risk Centre and Reader in Finance at LSE, said: "We tend to prepare for the last crisis and try to predict the trigger for the next. But systemic crises are defined by what happens after the shock – and AI could fundamentally change that dynamic. If institutions increasingly use similar models and react at machine speed, a containable shock can become systemic before there is time to respond. The challenge is not to predict the next crisis, but to be prepared for shocks we cannot foresee."

Supply chains are another key point of connection between risks. Geopolitical tensions, tariffs, climate events, pandemics and cyberattacks can all interact and reinforce one another through supply networks, creating multiple pathways for disruption to spread across companies and sectors.

Natural hazards can turn local disruption into wider risk

Climate risk mentions by companies increased by around 31 per cent since 2019. More than a quarter of US data centres are in areas with at least three large-hail days a year, while more than 40 per cent are in zones of significant tornado risk. In Taiwan, 88 per cent of semiconductor plants are in areas of extreme seismic risk.

When natural hazards hit concentrated infrastructure that large parts of the economy depend on and that cannot easily be replaced, a local shock can spread across the wider economy.

Concentration risk is not only geographic. Three providers controlled 70 per cent of global cloud infrastructure in 2024, while three companies process 97 per cent of global credit card transactions.

Less room to contain the next systemic crisis

Risk compensation is low by historical standards for some financial assets, while governments have less room to use traditional policy tools to contain future shocks. This increases the importance of building resilience before crises occur.

Jean-Pierre Zigrand, Director of the Systemic Risk Centre and Associate Professor of Finance at LSE, said: "Connections can make the system more resilient when they genuinely spread risk. But common dependencies can turn those same connections into channels that amplify shocks. The challenge is to preserve the benefits of being connected without concentrating risk in the same places."

Read the full report here.