BI losses increasingly driven by ‘non-physical damage’ like cyber attacks and geopolitical instability

Supply chain

Businesses are less concerned about the impact of traditional industrial risks such as natural catastrophes or fire, but are increasingly worried about the impact of other disruptive events, fierce competition in their markets and cyber incidents, the Allianz Risk Barometer 2016 has found.

In a survey of more than 800 risk managers and insurance professional from more than 40 countries, Allianz Global Corporate & Specialty (AGCS) found business and supply chain interruption (BI) remains the top risk for businesses globally. Many companies are concerned that BI losses will increasingly be driven by ‘non-physical damage’ such as cyber-attacks, technical failure or geo-political instability.

The second and third main risks were market developments and cyber incidents, respectively, with cyber also being cited as the most important long-term risk for businesses in the next decade.

“The corporate risk landscape is changing as many industrial sectors are undergoing a fundamental transformation,” explains AGCS CEO Chris Fischer Hirs. “New technologies, increasing digitalisation and the ‘Internet of Things’ are changing customer behavior, 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.”

In Asia, three new perils featured in the top five list. Business interruption topped the risk agenda for the fourth consecutive year, while market developments was a new entrant ranking second indicating that companies are increasingly concerned about volatility and competition. Natural catastrophes slipped one rank to third as companies appear less concerned about traditional risks such as storms, flood and fire. Macroeconomic developments is another new entrant to the Asia list and ranks fourth as several countries in the region cope with austerity programs and a weakening economy. Cyber was a big mover ranking fifth in Asia and China, after not appearing in the top 10 in 2015.

Challenging market environment

Globally, 34% cited market developments such as intensified competition or market volatility/stagnation as one of the three most important business risks in 2016. 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.

Another area of increasing concern for businesses globally are cyber incidents, as 28% of respondents cited this as a top three global risk, compared to only 1% in the first Allianz Risk Barometer five years ago. Loss of reputation (69%) is the main cause of economic loss for businesses after a cyber incident, according to responses, followed by business interruption (60%) and liability claims after a data breach (52%).

AGCS cyber insurance expert Jens Krickhahn said: “Studies show that it takes, on average, 90 days for businesses to discover they have been hacked. Often the incident is identified, not by the business itself, but by the customer or another stakeholder, which is another reason why cyber risks pose a huge threat to a company’s reputation.”