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Business survey

The risk landscape for businesses is substantially changing in 2016, says an insurance company.

While businesses are less concerned about the impact of traditional industrial risks such as natural catastrophes or fire, they are increasingly worried about the impact of other disruptive events, competition in their markets and cyber incidents. These are among findings of the Allianz Risk Barometer 2016, the fifth annual survey on corporate risks published by Allianz Global Corporate & Specialty (AGCS), which surveyed over 800 risk managers and insurance experts from more than 40 countries.

According to the barometer business and supply chain interruption (BI) remains the top risk for businesses globally for the fourth year. However, many companies are concerned that BI losses, which usually result from property damage, will increasingly be driven by cyber-attacks, technical failure or geo-political instability as new “non-physical damage” causes of disruption.

Meanwhile, two of the major risers in this year’s barometer feature in the top three corporate risks for the first time with market developments ranking second and cyber incidents third. Cyber incidents are also cited as the most important long-term risk for companies in the next ten years. In contrast, natural catastrophes drops two positions to fourth year-on-year, reflecting the fact that in 2015 losses from natural disasters reached their lowest level since 2009.

AGCS CEO Chris Fischer Hirs says: “The corporate risk landscape is changing as many industrial sectors are undergoing a fundamental transformation. New technologies, increasing digitalisation and the ‘Internet of Things’ are changing customer behaviour, industrial operations and business models, bringing a wealth of opportunities, but also raising awareness of the need for an enterprise-wide response to new challenges. As insurers we need to work together with our corporate clients to help them to address these new realities in a comprehensive manner.”

Challenging market

More than a third of responses (34 per cent) cited market developments such as intensified competition or market volatility/stagnation as one of the three most important business risks in 2016, ranking this new survey category as the second top peril overall. Market developments are a particular concern in the engineering, financial services, manufacturing, marine and shipping, pharmaceutical and transportation sectors, where this risk ranks among the top three business risks respectively. In addition, this risk ranks as a top two concern in Europe, Asia-Pacific and Africa and Middle East.

Many businesses are facing a growing number of challenges which threaten their profitability and possibly also their business models.

Bettina Stoob, Head of Innovation at AGCS says: “Businesses constantly have to be on their toes, turning out new products, services or solutions in order to stay relevant to the customer and to thrive in this rapidly changing and globally competitive environment. Innovation cycles are becoming rapidly shorter; market entry barriers are coming down; increasing digitalization and new “disruptive” technologies have to be quickly adopted while potentially more agile start-ups are entering the game.” At the same time businesses are also having to comply with changing or enforced regulation, increasing safety requirements or import/export restrictions.

Cyber attacks

Another area of increasing concern for businesses globally are cyber incidents which includes cyber-crime or data breaches, but also technical IT failures. Cyber incidents gained 11 percentage points year-on-year to move from fifth position into the top three risks for the first time (28 per cent of responses). Five years ago, cyber incidents were identified as a risk by just 1 per cent of responses in the first barometer. Loss of reputation (69 per cent) is the main cause of economic loss for businesses after a cyber incident, according to responses, followed by business interruption (60 per cent) and liability claims after a data breach (52 per cent). Companies are increasingly concerned about the growing sophistication of cyber-attacks, according to the survey.

Jens Krickhahn, cyber insurance expert at AGCS says: “Attacks by hackers are becoming more target-oriented, lasting for longer and can trigger a continuous penetration. While cyber-attacks are increasing both in frequency and severity, companies should not underestimate the impact of an operational failure in today’s highly digital and connected industries.

Volker Muench, AGCS expert for property underwriting, says: “A simple technical failure or user error can result in a major IT system outage disrupting supply chains or production. Early warning and better monitoring systems are necessary in order to prevent large cyber BI losses.”

Geo-political instability

BI remains the top peril in the barometer for the fourth year, with 38 per cent of responses. Indeed BI losses for businesses are increasing, typically accounting for a much higher proportion of the overall loss than a decade ago and often substantially exceeding the direct property loss, as AGCS insurance claims analysis shows. According to responses, major causes of BI feared most by companies are natural catastrophes (51 per cent), closely followed by fire/explosion (46 per cent). However, according to the survey’s findings, multinational companies are also increasingly worried about the disruptive impact of geo-political instability as war or upheaval could impact their supply chains or their staff or assets could suffer from acts of terrorism.

Axel Theis, Member of the Board of Management, Allianz SE, says: “Businesses need to prepare for a wider range of disruptive forces in 2016 and beyond. The increasing impacts of globalisation, digitalisation and technological innovation pose fundamental challenges.”

Comment

Rob Norris, Director of Enterprise and Cyber Security at Fujitsu UK and Ireland, said: “The news that cyber incidents are ranked as the top risk to businesses for reputation in the UK is not a surprise. Due to the number of high profile breaches over the last year, culminating in both monetary and reputational losses, organisations are increasingly focused on protecting their digital assets against cyber-attack.

“As consumers continue to embrace more digital services, data protection will become increasingly important – according to our recent ‘Digital Inside Out’ study into digital enablement, more than one in five consumers will now always use a digital service when it is offered by an organisation. Yet despite the surge in usage, of the 12 per cent of UK consumers who said they never use digital services when offered to them, the second highest reason given was security concerns. This highlights the importance of proactive prevention. Organisations must consider the people, process and technology elements when it comes to responding to the threats they face, which will help ensure that they are dealing with the most dangerous problems first.”


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