For the first time ever, Cyber incidents (35% of responses) ranks as the most important business risk in Asia-Pacific in the ninth Allianz Risk Barometer 2020, relegating perennial top peril Business interruption (BI) (34% of responses) to second place. The region’s results mirror a global trend that has seen awareness of the cyber threat growing rapidly in recent years, driven by companies increasing reliance on data and IT systems and a number of high-profile incidents. It is a stark change from seven years ago when it did not even feature in the top 10 risks on the mind of risk managers regionally.
Climate change (#3 with 25%) and Political risks and violence (debuting in the top 10 at #10 with 9%) are the biggest climbers regionally, underlining global warming and the business interruption that accompanies civil unrest as increasing concerns for companies and nations. The annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of a record 2,718 experts in over 100 countries including CEOs, risk managers, brokers and insurance experts.
Cyber risks continue to evolve
In addition to being the top risk regionally and globally, Cyber incidentsis among the top three risks in 80% of the countries surveyed in Asia Pacific, with India and South Korea ranking it as the top business risk. Businesses face the challenge of larger and more expensive data breaches, an increase in ransomware and spoofing incidents, as well as the prospect of privacy-driven fines or litigation after any event. A mega data breach – involving more than one million compromised records – now costs on average $42mn, up 8% year-on-year.
Extortion demands are just one part of the picture: Companies can suffer major BI losses due to the unavailability of critical data, systems or technology, either through a technical glitch or cyber-attack.
Business interruption — an undiminished threat with new causes
After seven years at the top, BI drops to the second position in the Allianz Risk Barometer. However, the trend for larger and more complex BI losses continues unabated. Causes are becoming ever more diverse, ranging from fire, explosion or natural catastrophes to digital supply chains or even political violence. In Australia, the total damage and economic loss caused by wildfires from September 2019 and into 2020 is estimated to cost $110 billion.
Businesses are also increasingly exposed to the direct or indirect impact of riots, civil unrest or terrorism attacks. Escalating civil unrest in Hong Kong has resulted in property damage, BI and general loss of income for both local and multinational companies as shops closed for months, customers and tourists stayed away or employees couldn’t access their workplace due to safety concerns. The consequence is a business interruption without physical losses but high financial ones.
Climate change brings added risk complexity
Climate change is a huge riser regionally, jumping to third from eighth last year, driven by risk management experts in countries and territories such as Australia, Hong Kong, India and Indonesia. Ongoing wildfires engulfing Australia, as well as severe floods in Jakarta have certainly hammered home the consequences of increasingly volatile weather for businesses.
An increase in physical losses is the exposure businesses fear most (49% of responses) as rising seas, drier droughts, fiercer storms and massive flooding pose threats to factories and other corporate assets, as well as transport and energy links that tie supply chains together. Further, business are concerned about operational impacts (37%), such as relocation of facilities, and potential market and regulatory impacts (35% and 33%). Companies may have to prepare for more litigation in future — climate change cases targeting ‘carbon majors’ have already been brought in 30 countries around the world, with most cases filed in the US.
Global results largely mirror the region’s, with Climate change (#7 with 17%) also moving up the rankings vis-à-vis the previous year, though not as drastically as Asia-Pacific, a reflection of how the effects of global warming have been more severely felt closer to home. Changes in legislation and regulation (#3 with 27%) rounds up the top 3 globally as businesses are increasingly concerned over the US-China trade war and Brexit.