Cyber Incidents Most Feared BI Trigger for Global Companies: Allianz Risk Report

By: LS Howard, Insurance Journal, January 2018

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

Allianz revealed that business interruption – 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 as well as 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.

Titled “Allianz Risk Barometer 2018,” the report surveyed 1,911 respondents in 80 countries, which included Allianz’ customers as well as brokers, risk consultants, underwriters, senior managers and claims experts. (The full list of top business risks is included at the bottom of this article.)

The report found that BI and cyber are bound together as a joint threat because cyber incidents, for the first time, 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 indeed rising from hacker attacks, the report noted they are more frequently caused by technical failures and employee error.

The report cited the causes of BI that respondents most fear as:

– Cyber incidents (listed as the top concern by 42 percent of respondents)
– Fire, explosion (40 percent of respondents)
– 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 for business can often be much higher than the cost of any physical damage.

“The average large BI property insurance claims 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 affirmed.

Increasingly, BI losses are triggered by non-traditional 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.

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

“BI impact is easy to underestimate,” said Thomas Varney, regional manager Americas, Allianz Risk Consulting, AGCS, who was quoted in the report. “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, he indicated.

Allianz Top Business Risks: 1-10

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/increasing volatility of weather (10 percent).