Allianz Risk Barometer 2015: Businesses exposed to increasing number of disruptive scenarios

Press Release | January 14, 2015 | Munich
  • Business interruption & supply chain, natural catastrophes, fire & explosion top risks for companies in 2015. Cyber and political risks are biggest movers in rankings.
  • Businesses least prepared for cyber risks. Loss of reputation and business interruption main cause of loss after IT security incidents. ‘Think tank’ needed.
  • Long term, companies face dual challenge managing impact of climate change and technological innovation.
Businesses face new challenges from a rise of disruptive scenarios in an increasingly interconnected corporate environment, according to the fourth Allianz Risk Barometer 2015. In addition, traditional industrial risks such as business interruption and supply chain risk (46% of responses), natural catastrophes (30%), and fire and explosion (27%) continue to concern risk experts, heading this year’s rankings. Cyber (17%) and political risks (11%) are the most significant movers. The survey was conducted among more than 500 risk managers and corporate insurance experts from both Allianz and global businesses in 47 countries.
“The growing interdependency of many industries and processes means businesses are now exposed to an increasing number of disruptive scenarios. Negative effects can quickly multiply. One risk can lead to several others. Natural catastrophes or cyber attacks can cause business interruption not only for one company, but to whole sectors or critical infrastructure,” says Chris Fischer Hirs, CEO of Allianz Global Corporate & Specialty SE (AGCS), the dedicated insurer for corporate and special risks of Allianz SE. “Risk management must reflect this new reality. Identifying the impact of any interconnectivity early can mitigate or help prevent losses occurring. It is also essential to foster cross-functional collaboration within companies to tackle modern risks.”
The risk of cyber crime and IT failures continues its rapid rise in the Allianz Risk Barometer, moving into the top five business risks globally for the first time (in 2014, cyber risks ranked 8th and in 2013 just 15th). In Germany, the United Kingdom and the United States cyber risks are now among the top three corporate risks. Loss of reputation (61%) and business interruption (49%) are regarded as the main causes of economic loss following an incident.
Although awareness of cyber risks is increasing, many companies are still underestimating the different impacts, according to 73% of responses. Budgetary constraints are another reason why companies are not better prepared to combat cyber risks. “Cyber risks are very complex. Different stakeholders such as IT security architects and business continuity managers need to share their knowledge to identify and evaluate threat scenarios,” explains Jens Krickhahn, Practice Leader Cyber & Fidelity at AGCS Financial Lines, Germany & Central Europe. “Previously siloed knowledge needs to be incorporated in one’ think tank’ which can look at risks holistically. The ‘human factor’ should also not be underestimated, as employees can cause IT security incidents, inadvertently and deliberately.”
Political/social upheaval is a much bigger concern for businesses in the 2015 Allianz Risk Barometer, rising nine positions to 9th overall compared with last year’s survey. The risk appears in the top 10 risks in the EMEA region for the first time in 8th. It is also a new entrant in the top 10 risks for Brazil, has become one of the top three risks in Russia and Switzerland and is ranked the top business concern in Ukraine. Furthermore, it is the second top cause of supply chain disruption (53%) after natural catastrophes. According to Christof Bentele, Head of Crisis Management at AGCS, the geo-political situation continues to deteriorate making companies more vulnerable: “Country risk levels change more often and more frequently than they did in the past, which makes risk assessment more volatile.” Another source of political tension in 2015 could come from lower oil prices which are going to strain the budgets of countries heavily dependent on oil revenues. Combating political risks and terrorism are identified as top business risk management challenges over the next five years.

For the third year in succession business interruption (BI) and supply chain risk is the top peril in the Risk Barometer with almost half (46%) of the responses rating this as one of the three most important risks for companies, up 3% year-on-year. Fire/explosion (43%) and natural catastrophes (41%) are the major causes of BI companies fear most.

The impact of the subsequent disruption potentially affecting a company, its suppliers and customers often outweighs the physical damage itself. At $1.36m, the average business interruption insurance claim is already 32% higher than the average direct property damage claim ($1.03m). “Businesses spend a lot of time assessing direct damage and looking at their own BI impact but more work needs to be done analyzing the risks associated with suppliers and customers,” says Paul Carter, Global Head of Risk Consulting at AGCS. Supply chain risk management remains a gap in many multinational companies’ risk management programs. Many businesses still do not have alternate suppliers. “Collaboration between different areas of the company is necessary in order to develop robust processes which identify break points in the supply chain,” explains Volker Muench, Global Practice Group Leader, AGCS Property Underwriting.

Although the top three risks BI /supply chain, natural catastrophes and fire and explosion are identical across the Europe, Middle East and Africa (EMEA), Americas and Asia Pacific regions for the third successive year, there are regional differences. Cyber risk is a big mover in EMEA’s and Americas’ top 10 risks, but it does not appear in the top 10 Asia Pacific risks, suggesting many companies are not grasping the full impact of the potential risks involved. A combination of shortage of skilled talent, together with an aging workforce is deemed an increasing concern and a new entry in the top 10 risks in the US. Across Asia Pacific, companies are more concerned about the trading environment than 12 months ago with the prospect of market stagnation or decline entering the top 10 risks.
The impact of natural catastrophes (42%) such as earthquakes remains the top risk for the Engineering and Construction sector. BI (68%) continues to be the top risk with manufacturers even more concerned than 12 months ago (60%), driven by the fact that the potential for large claims in certain sectors such as semiconductor or automotive is increasing. Changes in legislation and regulation (33%) remains the top concern for financial services, reflecting increasing supervisory intervention around the globe. The shipping sector is concerned about intensified competition (29%), while theft (47%) worries the transportation industry.
Climate change and natural catastrophes and so-called “disruptive technologies” such as 3D-printing or nanotechnology dominate the long-term risk agenda. “Companies can expect to face further disruption from technological innovation, while also being exposed to climate change impact as an underlying risk which is not within their direct control”, says Axel Theis, Member of the Board of Management, Allianz SE. “Individual best practice, along with collaboration across companies, industries and regions can help mitigate environmental damage and create future safety, growth and innovation in a more sustainable world.”
Allianz Global Corporate & Specialty (AGCS) is the Allianz Group's dedicated carrier for corporate and specialty insurance business. AGCS provides insurance and risk consultancy across the whole spectrum of specialty, alternative risk transfer and corporate business: Marine, Aviation (incl. Space), Energy, Engineering, Entertainment, Financial Lines (incl. D&O), Liability, Mid-Corporate and Property insurance (incl. International Insurance Programs).

Worldwide, AGCS operates with its own teams in 34 countries and through the Allianz Group network and partners in over 210 countries and territories, employing almost 4,700 people of 70 nationalities. AGCS provides insurance solutions to more than three quarters of the Fortune Global 500 companies, writing a total of €7.4 billion gross premium worldwide in 2017.

AGCS SE is rated AA by Standard & Poor’s and A+ by A.M. Best.
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