‘Cyber incidents’ ranks as the most important business risk globally in the ninth Allianz Risk Barometer 2020. Business interruption risk took the second place as one of top perils. Climate change ranked 7, reaching its highest point in the history of Allianz Risk Barometer. Joachim Müller, CEO of AGCS, highlighted that cyber risk and climate change were two significant challenges that companies need to watch closely in the new decade.
Macroeconomic developments and natural catastrophe risk were the top risks for Turkey.
9th annual survey on top business risks, Allianz Risk Barometer, was published by Allianz Global Corporate & Specialty (AGCS). This year’s survey attracted record participation of 2,718 experts from over 100 countries. Cyber incidents ranked as the most important business risk globally in the ninth Allianz Risk Barometer 2020, with 39% of the responses. 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, cyber risks ranked only 15th with just 6% of responses. Business interruption, which was regarded as the biggest risk for years, was relegated to number 2 with 37 percent. Changes in legislation and regulation, number three with 27%, and climate change number 7 with 17%, are the biggest climbers globally underlining the US-China trade war, Brexit and global warming as increasing concerns for companies and nations. Joachim Müller, CEO of AGCS, evaluated the survey results and highlighted that cyber risk and climate change were two significant challenges that companies need to watch closely in the new decade. “Of course, there are many other damage and disruption scenarios to contend with but if corporate boards and risk managers fail to address cyber and climate change risks this will likely have a critical impact on their companies’ operational performance, financial results and reputation with key stakeholders. Preparing and planning for cyber and climate change risks is both a matter of competitive advantage and business resilience in the era of digitalization and global warming,” Müller said.
Cyber risk costs amounting to millions
In addition to being the top risk 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 42 million USD, up by 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. 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,” said Marek Stanislawski, Deputy Global Head of Cyber, AGCS.
Business interruption continues to be an undiminished and complex threat
After seven years at the top, BI dropped to the second position in the Allianz Risk Barometer However, according to the Allianz Risk Barometer 2020, the trend for larger and more complex BI losses continues unabated. Causes for business interruption are becoming ever more diverse, ranging from fire, explosion or natural catastrophes to digital supply chains or even political violence. 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. “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.
Trade policy became just another political tool
Changes in legislation and regulation ranked third in the Allianz Risk Barometer, up from fourth in 2019. Tariffs, sanctions, Brexit and protectionism were cited as key concerns. 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. Ludovic Subran, Chief Economist of Allianz underlined that Trade policy was becoming just another political tool for many different policy ends such as economic diplomacy, geopolitical influence or environmental policy. “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,” said Subran.
Ignoring climate risk is more costly than grappling with it
Climate change rose to its highest-ever position of seventh in the Allianz Risk Barometer with a rate of 17 percent. It 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. According to the report, 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. 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,” said Chris Bonnet, Head of ESG Business Services at AGCS.
TOP 10 THREATS – GLOBAL
1/ Cyber incidents 39%
2/ Business interruption 37%
3/ Changes in legislation and regulation 27%
4/ Natural catastrophes 21%
5/ Market developments 21%
6/ Fire, explosion 20%
7/ Climate change 17%
8/ Loss of reputation or brand value 15%
9/ New technologies 13%
10/ Macroeconomic developments 11%
TOP 10 THREATS – TURKEY
1/ Macroeconomic developments 59%
2/ Natural catastrophes 41%
3/ Fire, explosion 35%
3/ Political risks and violence 35%
5/ Changes in legislation and regulation 29%
6/ Business interruption 24%
7/ Climate change/increasing volatility of weather 12%
8/ Cyber incidents 12%
9/ Market developments 12%
10/ New technologies 6% |
