Companies across all industries increasingly worry about the unpredictable business environment where markets are volatile and political perils, such as protectionism or terrorism, are on the rise.
Other growing concerns are digital dilemmas arising from new technologies, cyber risks and natural catastrophes. However, what continues to trouble them most are losses from business interruption. These are the key findings of the sixth annual Allianz Risk Barometer analyzing corporate risks globally, as well as by region, country, industry and size of business.
Engineering, Construction, Real Estate
For the engineering, construction and real estate sectors, the top business risks are natural catastrophes, business interruption, market developments, macroeconomic developments and fire or explosion.
The impact of natural catastrophes (40 percent) is the new top risk, replacing market developments. In recent years the cost of engineering claims has been rising with the trend towards ever-higher values and risks that are increasingly interconnected and concentrated on areas with exposure to natural hazards. Earthquakes pose a particular threat. A five-year analysis of large insurance claims ($1M+) showed earthquakes to be the top cause of loss in the engineering sector, accounting for 65 percent of all claims according to value.
BI continues to lead the ranking for the fifth year in a row for all industries globally (37 percent of responses) and second for engineering, construction and real estate, primarily because it can lead to significant income losses, but also because multiple new triggers are emerging, especially non-physical damage or intangible perils, such as cyber incidents as well as disruption caused by political violence, strikes and terror attacks. This trend is driven in part by the rise of the Internet of Things (IoT) and the ever-greater interconnectivity of machines, companies and their supply chains, which can easily multiply losses in case of an incident. Companies are also facing potential financial losses with the changing political landscape (Brexit, Trump, upcoming EU elections, etc.) leading to fears of increasing protectionism and anti-globalization.
“Companies worldwide are bracing for a year of uncertainty,” says Chris Fischer Hirs, CEO of Allianz Global Corporate & Specialty SE. “Unpredictable changes in the legal, geopolitical and market environment around the world are constant items on the agenda of risk managers and the C-suite. A range of new risks are emerging beyond the perennial perils of fire and natural catastrophes which require re-thinking of current monitoring and risk management tools.”
Market developments and volatility
Market developments and volatility ranked second (31 percent of responses) for all industries and third for engineering, construction and real estate. It was the top concern in the aviation/defense, financial services, marine and shipping and transportation sectors, as well as across the Africa and Middle East region in general. In order to anticipate any sudden changes of rules that could impact markets, companies will need to invest more resources into better monitoring politics and policy-making around the world in 2017. According to trade credit insurer Euler Hermes, a subsidiary of Allianz SE, since 2014, there have been 600 to 700 new trade barriers introduced globally every year.
At the same time, increasing reliance on technology and automation is transforming, and disrupting, companies across all industry sectors. While digitalization is bringing companies new opportunities, it is also shifting the nature of corporate assets from mostly physical to increasingly intangible, bearing new hazards, above all cyber risks (30 percent of responses). All companies ranked cyber threats a close third globally, climbing to number two across the Americas and Europe and the top risk in Germany, the Netherlands, South Africa and the UK. At the same time, it is the top concern globally for businesses in the information and telecommunications technology and the retail/wholesale sectors.
The threat now goes far beyond hacking and privacy and data breaches, although new data protection regulations will exacerbate the fall-out from these for businesses. Increasing interconnectivity and sophistication of cyber-attacks pose not only a huge direct risk for companies but also indirectly via exposed critical infrastructures such as IT, water or power supply. Then there is the threat posed by technical failure or human error, which can lead to long-lasting and widespread BI exposures. In the digitalized production or Industry 4.0 environment, a failure to submit or interpret data correctly could stop production. Businesses need to think about data as an asset and what prevents it from being used. Results also show that smaller companies may be underestimating cyber risk: in this category (revenues <€250 million), cyber ranks only sixth. However, the impact of a serious incident could be much more damaging for such firms.
Cyber threats was not in the engineering, construction and real estate top five risks.
Natural catastrophes and climate change/ increasing volatility of weather (respectively 24 percent and 6 percent of responses) also rank high on the agenda of businesses this year, particularly in Asia where the costliest disaster globally of 2016 occurred – the Kumamoto earthquake (Japan). Natural catastrophes rank as the top concern in Japan and Hong Kong, as well as globally among engineering/construction and power and utilities companies.
Across the Americas, fear of BI, cyber incidents and natural catastrophes are the three major concerns for businesses. Each of these issues at times may be an unknown or hidden risk exposure, but an exposure that could create potentially both short and long-term consequences to a company’s bottom line. Understanding of a supply chain exposure requires a partnership between client and carrier. Fears over macroeconomic developments and the new risk impact of increasing interconnectivity are also rising.
The sixth annual Allianz Risk Barometer published by Allianz Global Corporate & Specialty SE (AGCS) is based on a survey conducted among 1,237 risk experts from 55 countries. An Allianz Risk Barometer Overview and executive summary and Allianz Risk Barometer 2017 Appendix with charts by country are also available.