Cyber incidents and business interruption risk were the greatest concerns for companies for the second year in a row, according to a new report by Allianz.
While cyber incidents and business interruption were each rated as a top concern by 34% of respondents in the Allianz survey, macroeconomic issues such as inflation, financial market volatility and a looming recession (rising from #10 to #3 year on year) and the impact of the energy crisis were the top risers in this year’s list of business risks.
These concerns all called for immediate action from businesses, while longer-term concerns like natural catastrophes (from #3 to #6), climate change (#6 to #7) and pandemic outbreak (#4 to #13) all dropped in the rankings. Political risks and violence was a new entry in the top 10 global risks at #10, while shortage of skilled workforce rose to #8. Changes in legislation and regulation remained a top concern at #5, while fire/explosion risk fell two places to #9.
“For the second year in a row, the Allianz Risk Barometer shows that companies are most concerned about mounting cyber risks and business interruption,” said Joachim Mueller, CEO of AGCS. “At the same time, they see inflation, an impending recession and the energy crisis as immediate threats to their business. Companies – in Europe and the US in particular – worry about the current ‘perma-crisis’ resulting from the consequences of the pandemic and the economic and political impact from the ongoing war in Ukraine. It’s a stress test for every company’s resilience.
“The positive news is that as an insurer we see continuous improvement in this area among many of our clients, particularly around making supply chains more failure-proof, improving business continuity planning and strengthening cyber controls,” Mueller said. “Taking action to build resilience and de-risk is now front and center for companies, given the events of recent years.”
Cyber incidents, including IT outages, ransomware attacks and data breaches, ranked as the most important risk globally for the second consecutive year. It also ranked as the top peril in 19 different countries, including Canada, the UK, France, Japan and India. It is also the risk that small companies (those with less than $250 million in annual revenue) worry most about.
“For many companies, the threat in cyberspace is still higher than ever, and cyber claims remain at a high level,” said Shanil Williams, AGCS board member and chief underwriting officer corporate, responsible for cyber underwriting. “Large companies have become accustomed to being targeted and those with adequate cybersecurity are able to repel most attacks more effectively. Increasingly, more small and mid-size businesses are also being impacted. These tend to underestimate their exposure and need to continuously invest in strengthening their cyber control framework.”
According to the Allianz Cyber Center of Competence, the frequency of ransomware attacks remains elevated this year. The average cost of a data breach has hit an all-time high of $4.35 million, and is expected to exceed $5 million this year.
The war in Ukraine and wider geopolitical tensions have ratcheted up the risk of a large-scale cyber attack by state-sponsored actors, Allianz said. There is also a growing shortage of cybersecurity professionals, adding to the risk.
2023 is likely to be another year with heightened business interruption risks because many business models are vulnerable to sudden shocks and change, Allianz said. Business interruption ranked at #2 globally on the list of company risk, and was the #1 risk in countries such as the US, Brazil, Germany, Mexico, the Netherlands, SIngapore, South Korea and Sweden.
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There are many sources of business interruption, with cyber the cause companies fear most, according to Allianz. The rising cost of energy has forced some energy-intensive industries to move production or even consider temporary shutdowns, with the resulting shortages threatening to disrupt supply across several critical industries in Europe, including food, agriculture, construction and more. A possible global recession is another likely cause of business interruption in 2023.
Macroeconomic developments such as inflation and economic volatility were the third top risk for companies in 2023, up from #10 in 2022. This marks the first time this risk has appeared in the top three for a decade, Allianz said.
Inflation is a particular worry, as it is cutting into the profit margins of many companies, Allianz said.
“2023 will be a challenging year. In purely economic terms, it is likely to be a year to forget for many households and companies,” said Ludovic Subran, chief economist at Allianz. “Nevertheless, there is no reason to despair. For one thing, the turnaround in interest rates is helping, not least for millions of savers.
“The medium-term outlook is also much brighter, despite – or rather because of – the energy crisis. The consequences, beyond the expected recession in 2023, are already becoming clear: a forced transformation of the economy in the direction of decarbonization as well as increased risk awareness in all parts of society, strengthening social and economic resilience.”
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