- Evolving nature of risk, and rise in cyber-related incidents, means business interruption ranks as top threat for companies globally, according to 1,900+ risk experts from 80 countries
- Potential “cyber hurricane” events and tougher data protection rules shape cyber risk environment for year-ahead. Crisis response crucial for mitigation
- Record-breaking losses push natural catastrophes and climate change up risk agenda
- Business worry about emerging risks and liabilities arising from new technologies
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They take aim at the backbone of the connected economy and, when they strike, can jeopardize the success, or even the existence, of companies of every size and sector. Business interruption (# 1 with 42% of responses / # 1 in 2017) and Cyber incidents (# 2 with 40% of responses, up from # 3 in 2017) are this year’s top business risks globally, according to the Allianz Risk Barometer 2018.
Larger losses from natural catastrophes (# 3 with 30% of responses, up from # 4 in 2017) are also a rising concern for businesses, with the record-breaking 2017 disaster year also ensuring Climate change and increasing volatility of weather (# 10) appears in the top 10 most important risks for the first time. Meanwhile, the risk impact of New technologies (# 7 2018 / # 10 2017) is one of the biggest climbers, as companies recognize innovations such as artificial intelligence or autonomous mobility could create new liabilities and larger-scale losses, as well as opportunities, in future. Conversely, businesses are less worried about Market developments (# 4 2018 / # 2 2017) than 12 months ago.
These are the key findings of the seventh Allianz Risk Barometer, which is published annually by Allianz Global Corporate & Specialty (AGCS).The 2018 report is based on the insight of a record 1,911 risk experts from 80 countries.
“For the first time, business interruption and cyber risk are neck-and-neck in the Allianz Risk Barometer and these risks are increasingly interlinked,” says Chris Fischer Hirs, Chief Executive Officer, AGCS. “Whether resulting from attacks such as WannaCry, or more frequently, system failures, cyber incidents are now a major cause of business interruption for today’s networked companies whose primary assets are often data, service platforms or their groups of customers and suppliers. However, last year’s severe natural disasters remind us that the impact of perennial perils shouldn’t be underestimated either. Risk managers face a highly complex and volatile environment of both traditional business risks and new technology challenges in future.”
New business interruption triggers emerging
Business interruption (BI) is the most important risk for the sixth year in a row, ranking top in 13 countries and the Europe, Asia Pacific, and Africa & Middle East regions. No business is too small to be impacted. Companies face an increasing number of scenarios, ranging from traditional exposures, such as fire, natural disasters and supply chain disruption, to new triggers stemming from digitalization and interconnectedness that typically come without physical damage, but with high financial loss. Breakdown of core IT systems, terrorism or political violence events, product quality incidents or an unexpected regulatory change can bring businesses to a temporary or prolonged standstill with a devastating effect on revenues.
For the first time, cyber incidents also rank as the most feared BI trigger, according to businesses and risk experts, with BI also considered the largest loss driver after a cyber incident. Cyber risk modeler Cyence, which partners with AGCS and is now part of Guidewire Software, estimates that the average cost impact of a cloud outage lasting more than 12 hours for companies in the financial, healthcare and retail sectors could total $850 mn in North America and $700 mn in Europe.
Cyber risks continue to evolve
Cyber threats also vary according to company size or industry. “Small companies are likely to be crippled if hit with a ransomware attack, while larger firms are targets of a greater range of threats, such as the DDoS attacks which can overwhelm systems,” says Donavan.
Allianz Risk Barometer results show that awareness of the cyber threat is soaring among small- and medium-sized businesses, with a significant jump from # 6 to # 2 for small companies and from # 3 to # 1 for medium-sized companies. With regard to sector exposure, cyber incidents rank top in the Entertainment & Media, Financial Services, Technology and Telecommunications industries.
Weather and technology risk on the rise
After a record-breaking $135 bn in insured losses from natural catastrophes alone in 2017 – the highest ever – driven by hurricanes Harvey, Irma and Maria in the United States and the Caribbean, Natural catastrophes returns to the top three business risks globally. “The impact of natural catastrophes goes far beyond the physical damage to structures in the affected areas. As industries become leaner and more connected, natural catastrophes can disrupt a large variety of sectors that might not seem directly affected at first glance around the world,” says Ali Shahkarami, Head of Catastrophe Risk Research, AGCS.
Respondents fear 2017 could be a harbinger of increasing intensity and frequency of natural hazards. Climate change/increasing weather volatility is a new entrant in the Risk Barometer top 10 in 2018 and the loss potential for businesses is further exacerbated by rapid urbanization in coastal areas.
Meanwhile, the risk impact of New technologies is one of the big movers in the Allianz Risk Barometer, up to # 7 from # 10. It also ranks as the second top risk for the long-term future after cyber incidents, with which it is closely interlinked. Vulnerability of automated or even autonomous or self-learning machines to failure or malicious cyber acts, such as extortion or espionage, will increase in future and could have a significant impact if critical infrastructure, such as IT networks or power supply, are involved.
“Although there may be fewer smaller losses due to automation and monitoring minimizing the human error factor, this may be replaced by the potential for large-scale losses, once an incident happens,” explains Michael Bruch, Head of Emerging Trends, AGCS. “Businesses also have to prepare for new risks and liabilities as responsibilities shift from human to machine, and therefore to the manufacturer or software supplier. Assignment and coverage of liability will become much more challenging in future.”
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About Allianz Global Corporate & Specialty
Allianz Global Corporate & Specialty (AGCS) is a leading global corporate insurance carrier and a key business unit of Allianz Group. AGCS provides risk consultancy, Property-Casualty insurance solutions and alternative risk transfer for a wide spectrum of commercial, corporate and specialty risks across 12 dedicated lines of business.
Our customers are as diverse as business can be, ranging from Fortune Global 500 companies to small businesses, and private individuals. Among them are the world’s largest consumer brands, tech companies and the global aviation and shipping industry, but also wineries, satellite operators or Hollywood film actors. They all look to AGCS for smart answers to their largest and most complex risks in a dynamic, multinational business environment and trust us to deliver an outstanding claims experience.
We constantly strive to deliver the best for our customers through our global team of around 4,400 employees from over 70 nationalities in 34 countries worldwide. As the one of the largest Property-Casualty units of Allianz Group, we are backed by strong and stable financial strength ratings and a global network in over 200 countries and territories. In 2018, AGCS generated a total of €8.2 billion gross premium worldwide.