- Business interruption and supply chain, natural catastrophes and fire/explosion are the principal risks that continue to occupy the attention of global companies at the start of 2014, according to the third annual Allianz Risk Barometer, which surveyed over 400 corporate insurance experts from 33 countries.
The survey highlights the increasing complexity of business risks, including a combination of new technological-, economic- and regulatory-related risks, potentially creating a systemic threat for businesses. Allianz suggests that companies can respond to these growing challenges through stronger internal controls, combined with a holistic approach to risk management.
2014 will also be a critical year for companies when it comes to dealing with the threat posed by a number of emerging perils explains Axel Theis, CEO of Allianz Global Corporate & Specialty SE (AGCS): “Recognizing the impact of interconnectivity between different risks is a top priority for risk managers. Today’s business continuity plans must prepare for an increasing range of risk scenarios which need to reflect the sometimes hidden knock-on effects.”
In its 2014 Risk Barometer, Allianz highlights that businesses are more concerned about cyber and reputational risks than ever before. In the prolonged sluggish economic environment, they also worry more about market stagnation/decline and, especially in growth markets, about talent shortages.
Not least due to the ‘Energiewende’ (energy transformation), German companies in particular are highly occupied by changes in regulation and legislation, elected a top three risk. According to Michael Bruch, Head of R&D, Risk Consulting, AGCS. “With the planned transition to renewable energies in Germany, business strategies for the power supply industry have to be reconsidered. On the other hand, there is big potential for Germany to benefit from its new energy policy by leading the transition to the energy world of the future.”
Cyber and other interlinked emerging risks on the forefront
According to Allianz experts, the most heightened risk awareness in 2014 is around cyber and loss of reputation issues. Cyber is the biggest mover in this year’s Risk Barometer climbing up to rank 8 from 15, while reputation moved up to 6 from 10.
Many of the top ten risks in the Risk Barometer are closely interconnected with a potential cumulative effect, particularly changes in legislation, cyber risk and loss of reputation.
Amid rising cyber crime, IT-security is not enough. A comprehensive set of information and network security policies and procedures backed by the board of directors is essential. They also need to be properly implemented, tested and updated on a regular basis.
“Still, even with the best risk management framework, companies will never be totally safe from glitches in their IT-infrastructure, failure of internal processes or external cyber-attacks that result in network interruption or data loss. A business needs to decide whether it can afford to carry that risk itself or transfer it by taking out a cyber-insurance policy,” says Nigel Pearson, Global Head of Fidelity (including Cyber) at AGCS.
Top two risks generate highest losses
Business interruption and supply chain losses account for around 50-70 percent of all insured property losses, as much as 26 billion US-dollars a year for the insurance industry based on 2013 data. As in last year’s Risk Barometer, they represent the number one concern for businesses around the globe, including in Australia, Brazil, France, Germany, the UK and the US.
“As supply chains are becoming increasingly complex in a global sourcing world, any disruption can lead to a snowball effect,” advises Paul Carter, Global Head of Risk Consulting, AGCS. “Business continuity planning is key and should be part of any company’s procurement and supplier selection process. Yet, it is no longer sufficient to know your ‘critical’ suppliers; you also need to have a grasp of how they manage their own supply chain exposures.”
While business interruption remains the biggest threat for large corporates, mid-sized companies tend to be more concerned about fire and explosion, the impact of austerity measures and credit availability.
Even more costly than business interruption damages, insured losses from the second top risk, natural catastrophes, totalled over 38 billion US-dollars in 2013 (source: Swiss Re). A year earlier, due to a more damaging Atlantic hurricane season, they even amounted to 75 billion US-dollars.