Top business risks in China – interruption, natural catastrophies

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For the third consecutive year, Business Interruption (30% of responses) ranks as the most important business risk for Chinese companies in the ninth Allianz Risk Barometer 2020Natural catastrophes remains at (#2 with 26% of responses) while rounding up the top three is Cyber incidents and Market developments tied at the third spot (24% of responses.) 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.

Business interruption — an undiminished threat with new causes

After seven years as the top risk globally, BI drops to the second position but maintains top spot in China in the Allianz Risk Barometer reflecting the continuing trend for larger and more complex BI losses. 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.

Natural Catastrophes remain as a top three risk

Devastating typhoons in Asia and record breaking wildfires in Australia were among the disasters which dominated global headlines in 2019. However, economic losses from natural catastrophe events actually declined 20% year on- year to around $133bn.

In recent years, significant non-weather-related nat cat events, such as earthquakes or tsunamis, have been rare and, consequently, the importance of these risks has declined in the Allianz Risk Barometer. “Nevertheless, nat cat risks are in the top three risks in many regions across the globe that are frequently affected by meteorological, geophysical, climatological and hydrological events including China, US and Japan,” says Patrick Zeng, CEO Hong Kong & Greater China.

Cyber risks continue to evolve

Awareness of the cyber threat has grown rapidly in recent years, driven by companies’ increasing reliance on data and IT systems and a number of high-profile incidents. 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 an event. A mega data breach ─ involving more than one million compromised records ─ now costs on average $42mn, up 8% year-on-year. “Incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands. Five years ago, a typical ransomware demand would have been in the tens of thousands of dollars. Now they can be in the millions,” says Marek Stanislawski, Deputy Global Head of Cyber, AGCS.

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. “Many incidents are the results of human error and can be mitigated by staff awareness trainings which are not yet a routine practice across companies,” says Stanislawski.

Mr Zeng added: “With China locked in an ongoing trade war with the US that does not look to be fully resolved fully any time soon, risk managers in the country are concerned about the impact it will have on Business Interruption as the unpredictable nature of tariff announcements have made it difficult to plan accurately for the future. Also noteworthy is Cyber risks making the top 3 for the first time in China, as businesses in the country show a growing appreciation of the perils of non-traditional risks.”

Also taking the third spot, Market Developments are a key risk for China companies. 2019 was characterized by high market volatility, which will continue in 2020, according to Ludovic Subran, Chief Economist at Allianz. Uncertainties caused by trade conflict and political risks will continue to affect markets. Low growth- low-inflation may hide more direct pass-through from political risks to financial markets, and the need to manage negative externalities of interventionist policy-makers.

He adds, “Higher volatility from the US-China trade conflict will keep the dollar strong. The renminbi should depreciate further. A more fragmented world also means volatile commodity prices, currencies and capital flows for emerging markets.”

Climate change brings added risk complexity

Climate change, making its debut in the top 10, ranking in fifth place in China is a huge riser regionally, jumping to third from eighth last year in the Asia Pacific standings, 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.

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