These Three Exposures Standout as the Top Global Business Risks in Allianz Risk Barometer Survey
Cyber perils, business interruption (BI) and natural disasters were ranked as the top three business risks globally in 2022 by insureds and brokers participating in the 11th annual Allianz Risk Barometer survey.
Pandemic risks dropped from second last year to fourth position as majority of companies are less concerned and feel adequately prepared for future outbreaks. Natural catastrophes and climate change rose significantly in the annual rankings.
The threat of ransomware attacks, data breaches or major IT outages worries companies even more than business and supply chain disruption, natural disasters or the COVID-19 pandemic — all of which have heavily affected firms in the past year.
The Report at a Glance
The annual survey from Allianz Global Corporate & Specialty (AGCS) incorporates the views of 2,650 experts in 89 countries and territories, including CEOs, risk managers, brokers and insurance experts.
Cyber incidents topped the Risk Barometer for only the second time in the survey’s history, with 44% of responses. Business interruption dropped to a close second at 42%, while natural catastrophes ranked a distant third at 25%. That was, however, a meaningful jump from sixth in 2021.
“Cyber has been on the survey for three or four years,” said Thomas K. Varney, regional manger for North America at Allianz Risk Consultants, part of AGCS.
“It appeared at number 5 or 6, then moved up quickly. In contrast, BI has been in the top two or three since it debuted at number 2 on the first barometer. Nat CAT has gone up and down. It dropped out with advent of the pandemic, and now is back.”
Spotlight Shifts to NAT Cats and Cyber
Climate change climbed to its highest-ever ranking of sixth at 17%, up from ninth last year, while pandemic outbreak dipped to fourth at 22%.
The rise of natural catastrophes and climate change to third and sixth position is telling, with both upwards trends closely related. Recent years have shown the frequency and severity of weather events are increasing due to global warming. For 2021, global insured catastrophe losses were well in excess of $100 billion, the fourth highest year on record, according to AGCS.
Hurricane Ida in the U.S. may have been the costliest event, but more than half of the losses came from so-called secondary perils such as floods, heavy rain, thunderstorms, tornados and even winter freezes, which can often be local but increasingly costly events.
Examples included Winter Storm Uri in Texas; the low-pressure weather system Bernd, which triggered catastrophic flooding in Germany and Benelux countries; the heavy flooding in Zhengzhou, China; and heat waves and bushfires in Canada and California.
Adding some depth to that observation, Varney explained that respondents’ view of Nat CAT has broadened. “It used to be that Nat CAT was shorthand for hurricanes and tornadoes in some regions and seasons. But now Nat CAT includes freezes and tornadoes in December.”
The latter reference was to a cluster of tornadoes that ripped across eight states. The death toll made it one of the top 10 deadliest storm outbreaks on record, and one storm’s track of 250 miles made it the longest in history.
“The other important realization,” Varney added, “is that the top-ranked risks are all interconnected. They cannot be separated or isolated.”
“Our underwriters look at the barometer to help them understand the concerns of our clients and of their brokers. My group looks at the barometer as a guide to how we can support our underwriters,” he said.
As an example, Varney returned to cyber coverage. “When the barometer first came out, cyber was note really recognized as a thing unto itself. Now it is something that is addressed by experts in underwriting, claims, and loss control.”
Cyber incidents ranked as a top-three peril in most countries surveyed. The main driver is the recent surge in ransomware attacks, which are confirmed as the top cyberthreat for the year ahead by survey respondents, 57%.
Recent attacks have shown worrying trends such as double-extortion tactics combining the encryption of systems with data breaches, exploiting software vulnerabilities that potentially affect thousands of companies, or targeting physical critical infrastructure.
Cybersecurity also ranks as companies’ major environmental, social, and governance (ESG) concern with respondents acknowledging the need to build resilience and plan for future outages or face the growing consequences from regulators, investors and other stakeholders.
Supply Chain Risks Become More Obvious
In a year marked by widespread disruption, the extent of vulnerabilities in modern supply chains and production networks is more obvious than ever.
According to the survey, the most feared cause of BI is cyber incidents, reflecting the rise in ransomware attacks but also the impact of companies’ growing reliance on digitalization and the shift to remote working. Natural catastrophes and pandemic are the two other important triggers for BI in the view of respondents.
“The pandemic has exposed the extent of interconnectivity in modern supply chains and how multiple unrelated events can come together to create widespread disruption. For the first time the resilience of supply chains has been tested to breaking point on a global scale,” said Philip Beblo, property industry lead for technology, media and telecommunication at AGCS.
According to the recent Euler Hermes Global Trade Report, the COVID-19 pandemic will likely drive high levels of supply-chain disruption into the second half of 2022, although mismatches in global demand and supply and container shipping capacity are eventually predicted to ease, assuming no further unexpected developments.
“There is a growing willingness among top management to bring more transparency to supply chains with organizations investing in tools and working with data to better understand the risks and create inventories, redundancies, and contingency plans for business continuity,” said Maarten van der Zwaag, global head of property risk consulting at AGCS.
The pandemic itself remains a major concern for companies but dropped from second to fourth position; although the survey predated the emergence of the omicron variant.
While the COVID-19 crisis continues to overshadow the economic outlook in many industries, the survey indicates that businesses do feel they have adapted well.
Four fifths of respondents think they are adequately or well-prepared for a future incident. Improving business continuity management is the main action companies are taking to make them more resilient. &