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

Risk management

Business and supply chain interruption (BI) remains the top risk for businesses globally, the Allianz Risk Barometer 2016 has found.

Having surveyed over 800 risk managers and insurance experts from more than 40 countries, Allianz Global Corporate & Specialty (AGCS) found that 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.

After BI, 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,” explained AGCS CEO Chris Fischer Hirs. “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.”

Geographical variations

The top three risks varied from country to country, with the UK list comprising of cyber incidents, changes in legislation and regulation, and new technologies. In France, loss of reputation or brand value is considered to be the main risk, followed by market developments and political risk. Market developments were top of the list in Germany, while macroeconomic developments and new technologies took second and third place, respectively.

Globally, 34% of respondents 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 risk managers and insurance experts cited this as a top three global risk, compared to only 1% in the first Allianz Risk Barometer conducted 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%).

“Early warning and better monitoring systems are necessary in order to prevent large cyber BI losses,” said Jens Krickhahn, cyber insurance expert at AGCS. ‘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.’