Business interruption and cyber incidents interlink as the major threat for companies through 2018 and beyond, according to the insight of 1,911 risk experts from 80 countries in the Allianz Risk Barometer 2018.
Business interruption (BI) ranks as the most important global risk for the sixth year in a row (42% of responses), due to its tremendous effect on revenues. Companies face an increasing number of scenarios – from traditional exposures, such as the physical damage impact of natural catastrophes and fires on facilities and the supply chain to new triggers stemming from digitalization and interconnectedness that typically come without physical damage, but high financial loss. Cyber incidents is the most feared BI trigger for the first time. BI is also the main cause of economic loss for businesses after a cyber incident. Cyber BI incidents are increasing, resulting from hacker attacks, such as ransomware incidents, but more frequently from technical failures and employee error.
Cyber incidents continues an upward trajectory to 2nd most important business risk (40%). Five years ago it ranked 15th. Like a natural disaster, an attack can potentially impact hundreds of companies and incidents have escalated. So-called “cyber hurricane” events, where hackers disrupt large numbers of companies through common internet infrastructure dependencies, are increasing. Meanwhile, the introduction of the General Data Protection Regulation (GDPR) across Europe in May 2018, brings the prospect of more, and larger, fines for businesses who don’t comply. The way in which a business manages a data breach has a direct impact on the final cost. This will become even more the case under the GDPR. Reputational damage is irrevocably linked if the response to a cyber incident is inadequate.
Awareness of the cyber threat is soaring among small- to medium-sized businesses (SMEs)
A record-breaking $135bn in insured losses in 20171 ensures natural catastrophes returns to the top three business risks in 2018 (3rd 30%). Businesses worry the activity of the past year could be a harbinger of increasing intensity and frequency, ensuring climate change (10th 10%) is also a new entrant in the top 10 risks. Loss potential is further exacerbated by rapid urbanization in coastal areas.
Businesses are less concerned about market developments (4th 22%) than 12 months ago. Risk perception of changes in legislation and regulation (5th 21%) remains the same, despite a reduction in the number of protectionist measures. Concerns about fire, explosion (6th 20%) are up – claims analysis shows the average cost of a BI loss from a large fire incident totals $2m (€1.7m) – while loss of reputation or brand value (8th 13%) is also an increasing worry in an age when a crisis can spread globally within minutes. Political risks and violence (9th 11%) is down year-on-year, although businesses are more worried about the impact of terrorism. A general trend of increased political activism is anticipated in 2018.
The risk impact of new technologies (7th 15%) is one of the big movers in the rankings year-on-year. It is also the second top long-term risk after cyber incidents, with which it is closely interlinked. Vulnerability of machines to failure or malicious cyber acts will increase in future, potentially causing significant disruption to critical infrastructure. Businesses also have to prepare for new liability scenarios, as responsibility shifts from human to machine.
New risks require new tools to help manage and mitigate potential impacts. The role of insurance is evolving, whether it is through provision of new coverages such as cyber BI protection and non-damage BI which can protect against lost revenues due to an event disruption, or, increasingly, via offering access to services that can help to mitigate the impact of an incident as it develops, such as to crisis management specialists after a data breach or other reputational event. This reflects the fact that today’s risk management world is more fluid than it has ever been, with the impact of many of the top Allianz Risk Barometer perils interlinked.