- 9th annual survey on top business risks attracts record participation of 2,700+ experts from over 100 countries
- Cyber incidents have become more damaging and expensive for companies – and often result in lawsuits and litigation after the event
- Business interruption ranks second, but remains a key challenge with digitalization and civil unrest creating new causes of disruption and loss of income
- Climate change rises to its highest-ever position – companies are most concerned about physical losses from extreme weather events but also fear consumer criticism and increasing regulatory and legal action
Cyber incidents (46% of responses) ranks as the most important business risk in South Africa for the fourth time since the launch of survey in the country in 2016 and for the first time globally in the ninth Allianz Risk Barometer 2020, relegating perennial top peril at a global level, Business interruption (BI) (40% of responses) to second place. Cyber incidents ranked number one in 2016, 2017 and 2018 in South Africa. Awareness of the cyber threat has grown rapidly in recent years, driven by companies’ increasing reliance on data and IT systems and a number of high-profile incidents. Seven years ago, it ranked only 15th with just 6% of responses.
Changes in legislation and regulation (#3 with 29%) and Climate change (#6 with 19%) are the biggest climbers globally underlining the US-China trade war, Brexit and global warming as increasing concerns for companies and nations including South Africa. The annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of a record 2,718 experts in over 100 countries including CEOs, risk managers, brokers and insurance experts.
Cyber risks continue to evolve
In addition to being the top risk in South Africa and globally, Cyber incidents is among the top three risks in many of the countries surveyed; in Austria, Belgium, France, India, South Africa, South Korea, Spain, Sweden, Switzerland, the UK and the US it also ranks as the top business risk. 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 any 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.
Business interruption – an undiminished threat with new causes
After seven years at the top globally and just over a year as a top risk in South Africa, BI drops to the second position in the Allianz Risk Barometer. However, the trend for larger and more complex BI losses continues unabated. 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 escalate in Hong Kong, Chile, Bolivia, Colombia and France, resulting in property damage, BI and general loss of income for both local and multinational companies as shops closed for months, customers and tourists stayed away or employees couldn’t access their workplace due to safety concerns.
Changes in legislation and regulation
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. Planned laws that businesses in South Africa need to ponder about include: land expropriation without compensation, climate change bill, nationalization of the South African Reserve Bank and National Health Insurance Bill (NHI).
Critical infrastructure blackouts and Macroeconomic developments
Climate change brings added risk complexity
Climate change rises to its highest-ever position of sixth in South Africa (and seventh globally) in the Allianz Risk Barometer and is already in the top three business risks for the Asia-Pacific region overall, driven by risk management experts in countries and territories such as Australia, Hong Kong, India and Indonesia. An increase in physical losses is the exposure businesses fear most (49% 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 (37%), such as relocation of facilities, and potential market and regulatory impacts (35% and 33%). Companies may have to prepare for more litigation in future – climate change cases targeting ‘carbon majors’ have already been brought in 30 countries around the world, with most cases filed in the US.
“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.”
The Allianz Risk Barometer is our annual report identifying the top corporate risks for the next 12 months and beyond, based on the insight of more than 2,700 risk management experts from over 102 countries and territories.
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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. We provide 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 not only the world’s largest consumer brands, tech companies and the global aviation and shipping industry, but also wineries, satellite operators or Hollywood film productions. 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.
Worldwide, AGCS operates with its own teams in 33 countries and through the Allianz Group network and partners in over 200 countries and territories, employing over 4,400 people. As one of the largest Property-Casualty units of Allianz Group, we are backed by strong and stable financial ratings. In 2018, AGCS generated a total of €8.2 billion gross premium globally.