Cyber Risk Ranks as Most Feared BI Trigger for Global Firms: Allianz

By | February 5, 2018

Business interruption (BI) and cyber incidents interlink as the major threat facing companies, according to a report published by Allianz Global Corporate & Specialty (AGCS).

Allianz revealed that BI — including supply chain disruption — ranks as the most important global risk for the sixth year in a row (listed by 42 percent of respondents).

BI scenarios include the physical damage impact of natural catastrophes and fires on facilities and the supply chain. They also include new triggers stemming from digitalization and interconnectedness, which have a high financial cost, but usually do not cause physical damage, explained the company’s seventh annual risk report, “Allianz Risk Barometer 2018.”

The report surveyed 1,911 respondents in 80 countries, including Allianz’ customers, brokers, risk consultants, underwriters, senior managers and claims experts.

The report found that BI and cyber are considered a joint threat because cyber incidents are viewed as the most feared BI trigger, while BI is the main cause of economic loss after a cyber incident.

Although cyber BI incidents are rising from hacker attacks, the report noted they are more frequently caused by technical failures and employee error.

The causes of BI that respondents most fear include:

  • Cyber incidents (listed as the top concern by 42 percent of respondents)
  • Fire, explosion (40 percent)
  • Natural catastrophes (39 percent)
  • Supplier failure (30 percent)
  • Machinery breakdown (23 percent).

“BI can have a tremendous effect on a company’s revenues,” said the report, noting that BI losses can often be much higher than the cost of any physical damage.

“The average large BI property insurance claim is now in excess of $2 million,” which is more than a third higher than the average direct property damage loss of $1.75 million, the report said.

Increasingly, BI losses are triggered by nontraditional risk exposures, which don’t cause physical damage but result in lost income, or non-damage business interruption (NDBI), Allianz said.

Businesses still have to deal with traditional exposures, such as natural catastrophes, but they also are challenged by many new triggers, said Volker Muench, global practice group leader, Property, AGCS.

New BI triggers include digitalization (as data becomes a critical asset), supplier interdependencies, product quality incidents and indirect impacts from terrorism and political events or strikes, when people stay away from affected areas, Muench said.

“BI impact is easy to underestimate,” said Thomas Varney, regional manager Americas, Allianz Risk Consulting, AGCS. “Risks can be extremely complex. In many cases, it is difficult to know what the actual exposure is, how to calculate the loss or even where the actual disruption in the supply chain occurred.”

Companies often underestimate the length of time it takes to get back in business after a business interruption, particularly when they must use alternative suppliers, Muench said.

For example, companies may have their own cyber-attack continuity plan but might have failed to assess the impact of a cyber incident on their suppliers, which prevents them from delivering products or services.

Top Business Risks

Although business interruption and cyber are at the top of Allianz global business risks, survey respondents listed eight additional concerns. Here are all the global risks included in Allianz’ risk barometer for 2018 with the accompanying percentage of respondents:

  • Business interruption (42 percent)
  • Cyber incidents (40 percent)
  • Natural catastrophes (30 percent)
  • Market developments (22 percent)
  • Changes in legislation and regulation (21 percent)
  • Fire explosion (20 percent)
  • New technologies (15 percent)
  • Loss of reputation or brand value (13 percent)
  • Political risks and violence(11 percent)
  • Climate change/increasingvolatility of weather (10 percent).

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