Cyber risk is now a core concern for businesses in 2019 and beyond, joining Business interruption (BI), climate change and shortage of skilled workers as some of the biggest challenges that firms face.
According to a survey of top business risks, cyber for the first time sits alongside Business Interruption as the leading global risk, and follows in the wake of mega data breaches and privacy scandals, major IT outages and the introduction of tighter data protection rules in the European Union and other countries.
According to the Allianz Risk Barometer 2019 from insurance and risk consultancy Allianz Global Corporate & Specialty (AGCS), climate change and the shortage of a skilled workforce are the biggest climbers in rank.
At the same time, the annual survey also finds companies are more worried year-on-year about changes in legislation and regulation resulting in impacts such as Brexit, trade wars and tariffs.
“Companies need to plan for a wide range of disruptive scenarios and triggers, as this is where their big exposure lies in today’s networked society,” says Chris Fischer Hirs, CEO of AGCS.
“Disruptive risks can be physical, such as fire or storms, or virtual, such as an IT outage, which can occur through malicious and accidental means. They can stem from their own operations but also from a company’s suppliers, customers or IT service providers.
“Whatever the trigger, the financial loss for companies following a standstill can be enormous. New risk management solutions, analytical tools and innovative partnerships can help to better understand and mitigate the modern myriad of BI risks and prevent losses before they occur.”
BI threats continue to evolve
BI remains the top threat for businesses worldwide for the seventh year running, and is the top risk in countries such as the US, Canada, Germany, Spain, Italy and China. Potential BI scenarios are becoming ever more diverse and complex in a globally connected economy, including breakdown of core IT systems, product recalls/quality issues, terrorism, political rioting or environmental pollution.
Both cyber and BI risks are increasingly interlinked as ransomware attacks or accidental IT outages often result in disruption of operations and services costing hundreds of millions of dollars. Cyber incidents rank as the BI trigger most feared by businesses (50%), followed by fire (40%) and natural catastrophes (38%). At the same time, BI is seen as the biggest cause of financial loss for businesses after a cyber incident (69%).
Cyber – growing awareness, growing losses
Increasing concern over Cyber incidents follows a watershed year of activity in 2018.
Cyber crime now costs an estimated $600bn a year – up from $445bn in 20142. This compares with a 10-year average economic loss from natural catastrophes of $208bn – three times as much. While criminals use more innovative methods to steal data, commit fraud or extort money, there is also a growing cyber threat from nation states and affiliated hacker groups targeting critical infrastructure providers, stealing valuable data and/or trade secrets from companies.
Cyber incidents are increasingly likely to spark litigation, including securities and consumer class actions. Data breaches or IT outages can generate large third party liabilities as affected customers or shareholders seek to recoup losses from companies.
Natural catastrophes (28%) such as storms, floods and earthquakes again ranked third in this year’s top 10 ranking of global business risks.
While ongoing uncertainty over Brexit, global trade wars and tariffs are fueling corporate concerns about Changes in legislation and regulation (#4 with 27%).
Climate change (#8 with 13% of responses) and Shortage of skilled workforce (#10 with 9% of responses) are the biggest climbers globally in this year’s survey. Climate change could not only be a harbinger of increasing losses and disruption from extreme weather events and natural catastrophes, but is also likely to have big implications for regulation and liability considering rigid emission targets and new reporting and disclosure requirements in many sectors.
Shortage of skilled workforce appears for the first time among the top 10 business risks globally as well as for many countries in Central and Eastern Europe, the UK, US, Canada and Australia. It is driven by factors such as changing demographics, Brexit uncertainty and a shallow pool of talent in the digital economy.
Note: Business interruption and cyber incidents are tied at the top of the ranking at 37%. However, business interruption received more responses by number.