Business interruption (BI) and supply chain, natural catastrophes and fire/explosion are the major risks that occupy the attention of companies at the start of 2015, according to the fourth annual “Allianz Risk Barometer 2015.”
The Risk Barometer details the top 10 global business risks for 2015 as identified in a survey of over 500 risk managers and corporate insurance experts from more than 40 countries.
The survey revealed that cyber risk, which includes cyber crime, IT failures, espionage and data breaches, ranks in the top five business risks globally for the first time.
Businesses are increasingly concerned about a number of emerging perils from today’s complex global business environment. “The growing interdependency of many industries and processes means businesses are now exposed to an increasing number of disruptive scenarios,” says Chris Fischer Hirs, CEO, Allianz Global Corporate & Specialty SE (AGCS).
“Risk management must reflect this reality. The root cause of many losses can often be traced back to the planning phase. Identifying the impact of any interconnectivity early can mitigate or help prevent losses occurring. Fostering cross-functional collaboration within companies is essential to tackle modern interconnected risks.”
The Risk Barometer report said that globalization means businesses are more interconnected than ever before, which causes increased risk complexity. The number of multinational companies has grown from 7,000 to almost 104,000 over the past 50 years and is expected to reach 140,000 by 2020.
“One risk can lead to several others. For example, natural catastrophes and cyber attacks can cause business interruption, not only for one company but to whole sectors or critical infrastructure, such as power suppliers,” the report said.
Impact of Cyber Risk Underestimated
Although awareness has increased, cyber risk is still the top risk underestimated by business, the Allianz survey said, with budget constraints cited as one of the main reasons why companies are not more prepared for the disruption caused.
According to the Risk Barometer, loss to reputation or brand value is now the main cause of economic loss for businesses in the event of a cyber incident, even higher than costs resulting from the interruption.
Cyber risks are very complex and identification and evaluation of threat scenarios is not easy,” explains Jens Krickhahn, practice leader cyber & fidelity at Allianz Global Corporate & Specialty Financial Lines, Germany & Central Europe.
“Different stakeholders from the business need to share knowledge – IT experts can identify the scenarios, business continuity managers can quantify the duration, and finance the cost,” Krickhahn continued. “Previously siloed knowledge need to be incorporated in one ‘think tank’, which also includes the set-up of IT, processes and risk transfer. Everything must be closely interlinked.”
Krickhahn noted that many businesses’ computer systems are connected via different interfaces or platforms such as “clouds”. “Companies need to ask themselves whether their business partners’ systems are as robust as their own, as there have been a number of instances where hacking has occurred.”
The sharp increase in the use of mobile devices is only expected to exacerbate this problem, the Allianz report said. For example, the amount of mobile malware or malicious software for Android platforms skyrocketed by 400 percent compared with 2012, the Allianz report said.
Developing global networks also means many companies are increasingly exposed to the prospect of political/social upheaval, war, which rose nine positions to ninth overall compared with last year’s survey, the Allianz report said, adding that this risk is named as the second top cause of supply chain disruption after natural catastrophes.
Indeed, combating political risks and terrorism are identified as top business risk management challenges over the next five years, the report said. “There has been a notable uptick in geo-political tension of late, as has been well documented by events in Russia, Ukraine, the Middle East, Hong Kong and Thailand, for example.”
Climate Change, Disruptive Technologies
Climate change and natural catastrophes and so-called “disruptive technologies” such as 3D-printing or nanotechnology dominate the long-term risk agenda, according to the survey.
“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,” Theis continued.
The top 10 business risks identified by the Allianz Risk Barometer respondents are:
- Business interruption and supply chain
- Natural catastrophes
- Changes in legislation and regulation
- Cyber crime, IT failures, espionage, data breaches
- Loss of reputation or brand value (e.g. from social media)
- Market stagnation or decline
- Intensified competition
- Political/social upheaval, war
- Theft, fraud, corruption
The PDF of the entire Allianz Risk Barometer 2015 report is available via the company’s website.
Source: Allianz Global Corporate & Specialty