Business interruption tops Allianz risk ranking 2018

Business interruption risk, cyber risk and new technologies were the top ranked risks for Asia Pacific, according to the Allianz Risk Barometer 2018.

Japan and China both ranked business interruption (BI) as the top threat, followed by cyber incidents, with new technologies in third place.

Australian risk professionals put cyber risk in the top spot, with BI as the runner up, and changes in legislation and regulation behind that.

BI was also the top ranked risk in Hong Kong, Indonesia and South Korea.

Allianz noted the average global size of a BI commercial property insurance claim has reached $2.4m, overhauling traditional property damage claims, for which the average is $1.75m for a direct property damage loss.

The annual study by the German insurer asked 1,900 global risk professionals about their risk perceptions for 2018.

“Whether it results from factory fires, destroyed shipping containers, or, increasingly, cyber incidents, BI can have a tremendous effect on a company’s revenues. Yet its impact is one of the hardest risks to measure,” said the report.

“A severe interruption can even have a terminal impact, particularly for smaller companies. Moreover, increasing interconnectivity means the potential for higher losses is growing. BI can be a consequence of many of the other top risks in this year’s Allianz Risk Barometer,” continued Allianz.

The insurance firm noted a transition at work in BI of “an increasing number of disruptive scenarios” as society becomes more networked and interconnected.

“Businesses are facing an increasing number of disruptive scenarios, as the nature of BI risk evolves in our networked society,” said Volker Muench, global practice group leader for property, Allianz Global Corporate & Specialty (AGCS).

“They still have to deal with traditional exposures, such as the impact of natural catastrophe activity, which we’ve seen peak in 2017,” said Muench.

“But they are also challenged by a multitude of new triggers stemming from digitalization – as data becomes a critical asset –, supplier interdependencies and product quality incidents, as well as the indirect impact from terrorism and political events or strikes, which can result in loss of income from people staying away from impacted areas,” he added.

BI also ranked as the most underestimated risk, globally, according to risk management professionals.

“BI impact is easy to underestimate,” warned Thomas Varney, regional manager for the Americas, Allianz Risk Consulting, AGCS.

“Risks can be extremely complex. In many cases it is difficult to know what the actual exposure is, how to calculate the loss, or even where the actual disruption in the supply chain occurred,” continued Varney.

Muench added: “Companies often underestimate the complexity of ‘getting back to business’ and can have bottlenecks in their emergency plans, particularly with regards to alternative suppliers.”

BI is increasingly being triggered by non-traditional risk exposures which don’t cause physical damage but result in lost income – so-called non-damage business interruption (NDBI), as opposed to contingent business interruption covers – which typically compensate businesses for supply chain breakdowns in the wake of natural catastrophe.

Natural catastrophe was also a major risk in its own right – after a costly year of claims for re/insurance carriers.

“2017 was the costliest natural catastrophe year ever for insured losses,” said Mark Mitchell, Asia CEO at AGCS.

“Despite most catastrophes occurring in North America and Mexico, they still impact Asia, as 50% of claims by value are from subsidiaries of multi-national companies located outside of the disaster zones,” said Mitchell.

“This reflects the need for companies to adopt a global approach to risk exposures and insurance coverage. As manufacturing shifts east, Asia is increasingly exposed to such disasters,” Mitchell added.