An increasing interconnectivity of risks is becoming a bigger challenge than ever, while cyber risk remains underestimated, according to global survey

Black Swan

The biggest threats in 2012 are all within the sphere of economic risks, business interruption and destructive natural catastrophes, according t a global survey by Allianz’s industrial insurer Allianz Global Corporate and Specialty (AGCS).

The study found that while the issues above are the most pressing for businesses, IT and cyber risk are still being neglected and underestimated.

Twenty one percent of respondents saw economic risk as their biggest concern for 2012. This includes commodity price increases, loss of key markets, economic recession, sovereign debt concerns and foreign currency fluctuations.

Business interruption ranks second with 14% of respondents naming it their top concern. This includes especially the fear of supply chain interruptions.

In the globalised world economy no risk stands on its own or can be seen in isolation

“The past 20 to 30 years have seen the development of business strategies that promote the ideas of lean manufacturing and just-in-time supply. In reality this means rationalising supply, centralising distribution and, even holding virtual inventories,” explained Paul Carter, head of
property risk consulting at AGCS.

Allianz Risk Barometer

Source: Allianz

“In addition to these strategies there has been an increasing trend to source globally in order to reduce costs yet further, all along the chain. This has become the dominant economic model, but its success has been achieved at the expense of a significantly increased risk of disruption within companies’ overall supply chains. The very flexibility that provides the supply chain with its cost advantages has also caused its inherent vulnerability.”

Natural catastrophes, the third biggest risk according to the report, is one that has caused particularly high losses in 2011. Moreover, dramatic chains of natural catastrophes such as the Japan earthquake and subsequent tsunami have demonstrated the increasing challenge of interconnected risks.

In Germany, complexity risks feature prominently while in the UK companies are more worried about regulatory issues

“In the globalised world economy no risk stands on its own or can be seen in isolation. A combination of major events can come together in a perfect storm to compound the individual effects of each risk,” the AGCS report warns.

The global survey also highlighted regional differences in risk assessments. The risk of natural catastrophes is most feared by companies in Asia-Pacific – a fear sadly justified by the earthquake and tsunami in Japan or the recent flooding in Thailand.

In Germany, complexity risks feature prominently while in the UK companies are more worried about regulatory issues.

Companies all around the world show lilttle concern about IT related and cyber risks. Only one percent of respondents named the issue as a key concern.