The impact of business interruption (which includes supply chain disruption) is the major risk for companies for the seventh year in a row, according to the eighth annual Allianz Risk Barometer 2019*, with 37 percent of respondents ranking it as one of the three most important risks that threaten businesses.
For the first time, cyber incidents join bodily injury (BI) at the top of the rankings, also identified by 37 percent of respondents as one of the three top risks, said Allianz. It explained that cyber incidents include cyber crime, IT failure/outage, data breaches, fines and penalties, which are increasingly resulting in significant BI losses of their own.
Drilling down into the findings, AGCS said, the average BI property insurance claim now totals €3.1 million (US$3.6 million), which is 39 percent higher than the corresponding average direct property damage loss of €2.2 million ($2.5 million).
Allianz noted that many BI events can occur without physical damage but can still cost millions.
"Events such as breakdown of core IT systems, product recall or quality incidents, terrorism, political violence or rioting and environmental pollution can bring businesses to a standstill, meaning firms may be unable to provide products and services -- or customers stay away -- having a devastating effect on revenues," said Allianz in its survey report.
Allianz cited the example of the French retailers that lost about €1 billion ($1.1 billion) from four weekends of protests at the end of 2018. Further, it added, legislative change such as Brexit departure from the European Union in 2019 also poses a potential BI threat with anticipated disruption to supply chains.
"Potential BI scenarios are becoming ever more diverse and complex in a globally connected economy, including breakdown of core IT systems, product recalls/quality issues, terrorism, political rioting or environmental pollution," Allianz said.
Survey respondents cited the top five causes of BI they fear the most as: 1) cyber incidents (cited by 50 percent of respondents); 2) fire, explosion (40 percent); 3) natural catastrophes (38 percent); 4) supplier failure, lean processes (28 percent), and 5) machinery breakdown (28 percent).
At the same time, BI is seen as the biggest cause of financial loss for businesses after a cyber incident (69 percent), said the survey report.
"Cyber incidents can cripple a company's operations and severely impair its ability to deliver its services, yet they are just one of many loss triggers that can result in a BI for corporates," said Volker Muench, global practice leader, Utilities & Services, IT Communication, AGCS, in comments in the report.
The average insured loss from a cyber incident is now just over €2 million($2.3 million) compared with almost €1.5 million ($1.7 million) from a fire/explosion incident, said AGCS, noting that losses from major cyber events can be in the hundreds of millions or higher.
Cyber incidents rank as the BI trigger most feared by businesses, and BI is also the biggest cause of economic loss for businesses after a cyber incident, according to Allianz Risk Barometer respondents.
"Finally we have reached an important point where cyber is equally concerning for our customers as their major 'traditional' exposures, which means that entities across all industries and business segments now have this risk firmly on their radars," said Marek Stanislawski, the deputy global head of Cyber and Tech PI at AGCS.
"As all businesses embrace digital business models, success is highly dependent on the technology facilitating the business," said Georgi Pachov, global practice leader, Cyber, AGCS.
"Revenue streams can be easily interrupted following abnormal technological behavior. Cyber incidents leading to BI will become much more frequent in future due to the massive reliance on technology and data for running businesses," Pachov affirmed. "In the age of the 'internet of things,' if two manufacturing devices cannot communicate and exchange data with each other, this will inevitably lead to a business disruption."
Allianz Top Business Risks: 1-10
In addition to business interruption and cyber, the other top business risks named by survey respondents are:
- Business interruption - 37 percent
- Cyber incidents - 37 percent
- Natural catastrophes - 28 percent
- Changes in legislation and regulation (e.g., trade wars and tariffs, economic sanctions, protectionism, Brexit, Euro-zone disintegration) - 27 percent
- Market developments (e.g., volatility, intensified competition/new entrants, M&A, market stagnation, market fluctuations) - 23 percent
- Fire, explosion - 19 percent
- New technologies (e.g., impact of increasing interconnectivity, nanotechnology, artificial intelligence, 3D printing, autonomous vehicles, blockchain) - 19 percent
- Climate change/increasing volatility of weather - 13 percent.
- Loss of reputation or brand value - 13 percent
- Shortage of skilled workforce - 9 percent.
Climate change (at number 8 with 13 percent of respondents) and shortage of skilled workforce (at number 10 with 9 percent of respondents) are the biggest climbers in rank from last year (from 10th and 8th rankings, respectively, in 2018), noted the AGCS survey report.
Allianz explained that climate change rose up the list of business threats as a result of concerns that the recent spate of natural catastrophe activity could be a harbinger of increasing financial losses and disruption. In addition to damage and disruption to property, climate change is likely to have big implications for regulation and liability, including emissions targets, and reporting and disclosure requirements. Such concerns ensured that climate change rose to its highest-ever position, AGCS said.
The shortage of skilled workforce appears for the first time in the top 10 global risks, which Alllianz attributed to factors such as changing demographics and Brexit.
* Methodology: Allianz' annual risk barometer incorporates the views of 2,415 respondents from 86 countries, including CEOs, risk managers, brokers and insurance experts in 22 industry sectors.