Cyber moves to the top of global business concerns: Allianz Risk Barometer 2020
- Published: Tuesday, 14 January 2020 11:08
For the first time, cyber incidents rank as the most important business risk globally in the Allianz Risk Barometer, relegating perennial top peril business interruption (BI) to second place. Awareness of the cyber threat has grown rapidly in recent years; seven years ago, it ranked only 15th in the Risk Barometer.
The Risk Barometer is an annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS). The 2020 edition incorporates the views of a record 2,718 respondents in over 100 countries.
Cyber risks continue to evolve
In addition to being the top risk globally, cyber incidents are 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 an event. “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.
Business interruption – an undiminished threat with new causes
After seven years as the top peril, 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.
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.
Legislation and regulation
Changes in legislation and regulation ranks third in the 2020 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. “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 brings added risk complexity
Climate change rises to its highest-ever position of seventh 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 percent 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 percent), such as relocation of facilities, and potential market and regulatory impacts (35 percent and 33 percent). 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.”