Cyber Joins Business Interruption as Leading Global Risk
In the wake of mega data breaches and privacy scandals, major IT outages and the introduction of tighter data protection rules in the European Union and other countries, cyber risk is now a core concern for businesses in 2019 and beyond.
According to the Allianz Risk Barometer 2019, Cyber incidents (37 percent of responses) jointly leads with business interruption (37 percent of responses) as the top business risks globally. climate change (#8 with 13 percent of responses) and shortage of skilled workforce (#10 with nine percent of responses) are the biggest climbers globally. Companies are more worried year-on-year about changes in legislation and regulation (#4 with 27 percent of responses) resulting in impacts such as Brexit, trade wars and tariffs.
The annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of a record 2,415 experts from 86 countries, including CEOs, risk managers, brokers and insurance experts.
Business interruption threats continue to evolve
Business interruption remains the top threat for businesses worldwide for the seventh year running and is the top risk in countries such as the U.S., Canada, Germany, Spain, Italy and China. 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.
Both cyber and business interruption risks are increasingly interlinked as ransomware attacks or accidental IT outages often result in disruption of operations and services costing hundreds of millions of dollars. Cyber incidents rank as the business interruption trigger most feared by businesses (50 percent), followed by fire (40 percent) and natural catastrophes (38 percent). At the same time, business interruption is seen as the biggest cause of financial loss for businesses after a cyber incident (69 percent).
Cyber – growing awareness, growing losses
Increasing concern over Cyber incidents follows a watershed year of activity in 2018.
Cyber crime now costs an estimated $600 billion a year - up from $445 billion in 2014.This compares with a 10-year average economic loss from natural catastrophes of $208 billion. While criminals use more innovative methods to steal data, commit fraud or extort money, there is also a growing cyber threat from nation states and affiliated hacker groups targeting critical infrastructure providers, stealing valuable data and/or trade secrets from companies.
Cyber incidents are increasingly likely to spark litigation, including securities and consumer class actions. Data breaches or IT outages can generate large third party liabilities as affected customers or shareholders seek to recoup losses from companies.
Rising threats
Natural catastrophes (28 percent) again ranked third in this year’s top 10 ranking of global business risks with 2018 being a more benign version of 2017’s peak catastrophe losses, although economic losses still totaled close to $150 billion. Ongoing uncertainty over Brexit, global trade wars and tariffs fuel corporate concerns about changes in legislation and regulation (#4 with 27 percent).
Climate change (#8 with 13 percent of responses) and shortage of skilled workforce (#10 with nine percent of responses) are the biggest climbers globally in this year’s survey. Climate change could not only be a harbinger of increasing losses and disruption from extreme weather events and natural catastrophes but is also likely to have big implications for regulation and liability considering rigid emission targets and new reporting and disclosure requirements in many sectors.
Shortage of skilled workforce appears for the first time among the top 10 business risks globally as well as for many countries in Central and Eastern Europe, the U.K., U.S., Canada and Australia. It is driven by factors such as changing demographics, Brexit uncertainty and a shallow pool of talent in the digital economy.
The report is available here.