Technology is breeding new threats as well as business models. Traditional risks such as natural catastrophes continue to challenge while other threats such as cyber, neck-and-neck with business interruption at the top of the Allianz Risk Barometer 2019 for the first time, reputational risk, increasing exposure to intangible assets and volatility and consolidation in the corporate environment evolve daily.
Snapshot: Top Business Risks 2019 Around the World
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A consequence of many of the other top risks in the Allianz Risk Barometer, business interruption (BI) is the top threat for companies for the seventh year running (37% of responses). According to AGCS, the average BI property insurance claim now totals over €3mn ($3.4mn) at €3.1mn. This is more than a third (39%) higher than the corresponding average direct property damage loss (€2.2mn) with these totals significantly higher than five years ago. Losses from the largest events can be in the hundreds of millions or higher.
Businesses face an increasing number of BI scenarios. Many can occur without physical damage but with high losses. 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. For example, retailers lost about €1bn ($1.1bn) from four weekends of protests in France at the end of 2018 In today’s uncertain political landscape, legislative change such as the UK’s expected Brexit departure from the European Union in 2019 also poses a potential BI threat with supply chain disruption anticipated. Read more
BI is joined at the top of the ranking for the first time by cyber incidents (37%). According to AGCS, even the average insured loss from a cyber incident is now just over €2mn ($2.3mn) compared with almost €1.5mn from a fire/explosion incident, while losses from major events can be in the hundreds of millions or higher. Increasingly, cyber incidents bring their own BI losses. Respondents rank cyber as the BI trigger they fear most, given many companies’ primary assets can often be data, service platforms or groups of customers or suppliers.
BI loss was a hallmark of the WannaCry and NotPetya malware attacks in 2017 which disrupted shipping, logistics and manufacturing companies. Insurers have seen a growing number of BI losses trigged by cyber incidents with industry claims exceeding $100mn. Many incidents are the result of technical glitches or human error rather than malicious acts – analysis conducted by the UK’s financial services regulator revealed a 138% increase in technology outages over a year but just 18% of reported incidents were cyber-attacks. IT outages pose a significant risk. Incidents such as power surges or failed IT platform migrations can cost hundreds of millions. Reliance on IT service providers – such as cloud services, online booking platforms and supply chain systems – also brings potential contingent business interruption (CBI) exposures. A software glitch at network equipment provider Ericsson disrupted services for millions of mobile phone customers in Europe and Japan in 2018. In 2017, a four hour outage at Amazon’s AWS cloud computing division impacted internet services, websites and other businesses. Companies lost approximately $150mn as a result. Longer outages could see losses much closer to a billion dollars.
Increasing concern over cyber incidents follows a watershed year of activity. Cyber crime costs an estimated $600bn a year up from $445bn in 2014. This compares with a 10-year average economic loss from natural catastrophes of around $200bn – three times as much. There is also a growing threat from nation states, which use technology to steal valuable data and trade secrets, with implications for businesses.
Impact of mega data breaches, privacy scandals and the introduction of the European Union’s General Data Protection Regulation – which has also inspired tougher privacy rules and the threat of large fines elsewhere – are also occupying companies’ thoughts. Cyber incidents are increasingly likely to spark litigation, including securities and consumer class actions.
Every company needs to adopt an IT security position which is adequate to their size, operations and risk profile and invest in technological security solutions, proper backup mechanisms and staff training. The last aspect is equally important, especially for small and mid-sized enterprises, for which awareness of the growing cyber threat and its link to loss of reputation is a growing concern. Read more
Major events such as hurricanes Michael and Florence in North America, Typhoon Jebi in Japan and more wildfires in California brought approximately $146bn of economic losses from natural catastrophes (3rd 28%) in 2018 coming on the back of a record loss year in 2017. Respondents are concerned that recent activity could be a harbinger of increasing financial losses and disruption ensuring climate change (8th 13%) rises to its highest-ever position. In addition to damage and disruption to property, climate change is likely to have big implications for regulation and liability. Emissions targets are already shaping industries like aviation and shipping. Growing reporting and disclosure requirements will increase exposures for companies and directors and officers. Read more
Businesses are more concerned about changes in legislations and regulation (4th 27%) than 12 months ago with trade wars, tariffs and ongoing uncertainty over Brexit heightening fears about the resilience of supply chains. Market developments (5th 23%) remains a top five risk after 2018 was marked by record volatility, divergence and surprises, with more of the same expected in 2019. Impact of fire, explosion incidents (6th 19%) is a perennial concern. According to AGCS, fires (not including wildfires) have caused in excess of €14bn ($15.9bn) worth of insurance losses over the past five years, making it the top cause of loss for businesses.
New technologies (7th 19%)present fantastic opportunities for business, including new ways to manage risk. However, as the number of connected machines increase it also brings questions around security, data protection, business continuity and third party liability, as well as the potential for critical infrastructure breakdown. Unexpected consequences continue to materialize, such as drone activity cancelling some 1,000 aircraft at the UK’s Gatwick airport in December 2018. Meanwhile, product recalls, cyber incidents and executive conduct have all tainted the reputations of organizations in recent years, affecting airlines, car manufacturers, banks and charities meaning protecting against loss of reputation or brand value (9th 13%) takes on urgency in the social media age when crises spread rapidly. Shortage of skilled workforce (10th 9%) appears in the top 10 global risks for the first time with factors such as changing demographics, and Brexit contributing to its rise. Read more
Such a long and diverse list of threats requires new risk management solutions, tools and partnerships to manage and mitigate their potential impacts. Insurance is increasingly providing tangible assistance to intangible risks. Cyber insurance is becoming a valuable part of incident response by providing companies access to specialist consulting services which can help battle and better prepare for events. Cyber BI insurance can defend against loss of income and costs from unavailability of data and systems caused by hacking, technical failure or employee error. Non-damage BI insurance indemnifies a business for revenue loss from a disruptive event such as a protest or riot. Reputational risk insurance provides advisory and response costs in event of crisis.
New technologies are also boosting risk analysis. Insurers such as AGCS now utilize semantics analysis to better understand supply chain risk, drones to quickly assess catastrophe damage and are partnering with insurtechs to identify next generation litigation risks. In an increasingly networked world, data from devices, factories and supply chains will provide an opportunity for even better risk assessment through predictive indicators and more flexible, tailored and timely solutions, with the ultimate aim being to understand and manage risks more quickly in order to prevent losses before they occur.
Top Business Risks
 BBC News, December 9, 2018, Yellow vest protests ‘economic catastrophe for France
 BI and cyber incidents tied on 37%. BI received more responses by number – 1,078 to 1,052.
 Average value of cyber claim is €2,007,653 based on 115 insurance industry claims between 2013 and 2018.
 The Financial Conduct Authority, November 27, 2018, Cyber and technology resilience in UK financial services
 Reuters, December 6, 2018, Ericsson sorry for software glitch that hits mobile services in Britain and Japan
 Guidewire Cyence Risk Analytics, MMC Cyber Handbook 2018, Evolution of Cyber Risks Quantifying Systemic Exposures
 Center for Strategic and International Studies, Economic Impact of Cybercrime – No Slowing Down
 Swiss Re, December 18, 2018
 Fire, explosion and new technologies tied at 19%. Fire, explosion received more responses