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Nat CATs and non-physical damages are top risks for Japanese firms

Source: Asia Insurance Review | Feb 2017

In the 6th annual Allianz Risk Barometer which analyses corporate risks globally, natural catastrophes, business interruption and market developments are ranked as top risks for Japan. Allianz Global Corporate and Specialty elaborates.
 
Highlights
  • Natural catastrophes, business interruption and market developments and volatility rank as the top three concerns in Japan; and
  • Cyber incidents is one of the fastest growing risks in Asia, driven by impact of indirect attacks, regulatory threats and technical and employee error in digitalised production environment.
 
Natural catastrophes and business interruption high are on the agenda of businesses across Asia this year, particularly in Japan, where the costliest disaster globally of 2016 occurred – the Kumamoto earthquake which had a total economic loss of US$20 billion with just $5 billion insured. Natural catastrophes rank as the top concern in Japan, as well as, globally among engineering/construction and power and utilities companies. 
 
   These are the key findings of the 6th annual Allianz Risk Barometer analysing corporate risks globally, as well as by region, country, industry and size of business.
 
   “Natural catastrophes and climate change worry our customers and society at large,” said Mr Axel Theis, Board Member of Allianz SE. “We must assume that global warming above 1.5 degrees Celsius would intensify climate damages, for example from heat waves and rising sea levels, significantly. It is our task as insurer to develop solutions for these scenarios and establish prevention and insurance protection for, and together with, our customers and public partners.” 
 
Rise of non-physical damage triggers to BI
Business interruption (BI) continues to lead the global rankings for the fifth year in a row, and ranks 2nd in Japan, primarily because it can lead to significant income losses, but also because multiple new non-physical damage triggers are emerging, such as cyber incidents, and 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. 
 
Changing political landscape
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-globalisation. 
 
   “Companies worldwide are bracing for a year of uncertainty,” said Mr Chris Fischer Hirs, CEO of AGCS. “They are concerned about rather unpredictable changes in the legal, geopolitical and market environment around the world. A range of new risks are emerging beyond the perennial perils of fire and natural catastrophes and require re-thinking of current monitoring and risk management tools.”
 
Market developments and volatility
Market developments and volatility is the second most important business peril globally in 2017 and ranks 3rd in Japan. It is the top concern in the aviation/defence, financial services, marine and shipping and transportation sectors, as well as across the Africa & 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, since 2014, there have been 600 to 700 new trade barriers introduced globally every year.
 
Cyber is fastest-growing threat in Asia and Japan
At the same time, increasing reliance on technology and automation is transforming, and disrupting, companies across all industry sectors. 
 
   While digitalisation 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. 
 
   Companies ranked cyber threats a close 3rd globally, climbing to 2nd across the Americas and Europe and the top risk in Germany and the UK. In Asia and also Japan, cyber incidents is one of the fastest growing risks in Asia, ranking 4th; driven by impact of indirect attacks, regulatory threats and technical and employee error in digitalised production environment.
 
   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. Time is running out for businesses to prepare for the implementation of the new General Data Protection Regulation across Europe in 2018 – although the cost of compliance will be high, the penalties of not doing so could be even higher. 
 
   Increasing interconnectivity and sophistication of cyber-attacks poses 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 digitalised 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 66th. However, the impact of a serious incident could be much more damaging for such firms.
 
The most important risks for businesses in Japan
 
The sixth annual Allianz Risk Barometer, published by Allianz Global Corporate & Specialty (AGCS), is based on a survey conducted among 1,237 risk experts from 55 countries.
 

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