Allianz Risk Barometer 2020: Business interruption top peril for companies in Africa and the Middle East

The rise of BI to the top in Africa and Middle East is a strong indication of the trend for larger and more complex BI. Causes are becoming ever more diverse, ranging from fire, explosion or natural catastrophes to digital supply chains or even political violence. “Digital supply chains and platforms today allow for full transparency and traceability of goods but a fire at a data center, a technical glitch or a hack could bring large BI losses for multiple companies that all rely and share the same system and which cannot switch back to manual processes,” says Raymond Hogendoorn, Global Head of Property and Engineering Claims at AGCS.

Businesses are also increasingly exposed to the direct or indirect impact of riots, civil unrest or terrorism attacks. The past year has seen civil unrest in Ethiopia, Mali, Cameroon, Niger, Sudan, Guinea, South Sudan and Somalia to name but a few with some resulting in property damage, BI and general loss of income for both local and multinational companies.

Cyber incidents’ move to second in Africa is in line with its move to the top risk globally. It is a dominant risk in South Africa and has been a top risk since 2016 except only in 2019 where it ranked second to BI. It ranks third in Tanzania, fourth in Ghana, eighth in Nigeria and ninth in Cameroon this year. Businesses face the challenge of larger and more expensive data breaches, an increase in ransomware and spoofing incidents, as well as the prospect of privacy-driven fines or litigation after an event. A mega data breach - involving more than one million compromised records - now costs on average $42mn [1] up 8% year-on-year.

“Incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands. Five years ago, a typical ransomware demand would have been in the tens of thousands of dollars. Now they can be in the millions,” says Marek Stanislawski, Deputy Global Head of Cyber, AGCS.

Extortion demands are just one part of the picture: Companies can suffer major BI losses due to the unavailability of critical data, systems or technology, either through a technical glitch or cyber-attack. “Many incidents are the results of human error and can be mitigated by staff awareness trainings which are not yet a routine practice across companies,” says Stanislawski.

Changes in legislation and regulation (#3 with 26%) and Climate change (new risk at #10 with 14%) are big risks to companies underlining the US-China trade war, Brexit, the African Continental Free Trade Area (AfCFTA)  and global warming as increasing concerns for companies in the region. Around 1,300 new trade barriers were implemented in 2019 alone. The US-China trade dispute has brought the US average tariff close to levels last seen in the 1970s.

“Trade policy is becoming just another political tool for many different policy ends, such as economic diplomacy, geopolitical influence or environmental policy,” explains Ludovic Subran, Chief Economist of Allianz. “This activism is not restricted to the US: it has spread to Japan and South Korea, India and the EU.”

New regulatory challenges in the next decade will focus on environmental impact, de-carbonization and climate change. “EU sustainability regulation is nothing less than a game changer. The impact on corporates will be as wide-ranging as that of the new rules on accounting and data protection were in the past,” says Subran.

Climate change is a new entrant in the Allianz Risk Barometer at #10 in Africa and the Middle East, driven by risk management experts in Ghana, South Africa, Tanzania, and Cameroon. An increase in physical losses is the exposure businesses fear most (59% of responses) as rising seas, drier droughts, fiercer storms and massive flooding pose threats to factories and other corporate assets, as well as transport and energy links that tie supply chains together. Further, businesses are concerned about operational impacts (49%), such as relocation of facilities, and technological and market impacts (35% and 32%).

“There is a growing awareness among companies that the negative effects of global warming above two degrees Celsius will have a dramatic impact,” says Chris Bonnet, Head of ESG Business Services at AGCS. “Failure to take action will trigger regulatory action and influence decisions from customers, shareholders and business partners. Ignoring climate risk is more costly than grappling with it. Therefore, every company has to define its role, stance and pace for its climate change transition – and risk managers need to play a key role in this process alongside other functions.”