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APAC: Cyber a close second to business interruption among top concerns for companies - Allianz

Source: Asia Insurance Review | Feb 2019

Cyber risk has emerged as a core concern for Asia Pacific (APAC) businesses in 2019, just narrowly edged out by business interruption (BI) which continues to be top business threat for the seventh year running, according to the Allianz Risk Barometer 2019.
 
The 8th annual survey on business risks by Allianz Global Corporate and Specialty (AGCS) saw a record participation of 2,415 industry members and buyers from 86 countries, of which 721 were from the region, who could select up to three top risks.
 
BI threats continue to evolve
BI, ranked by 38% of APAC respondents, remains the top threat for APAC businesses and ranks amongst the top two risks in countries such as the Australia, Hong Kong, Japan, Singapore, South Korea and China. Potential BI scenarios are becoming ever more diverse and complex in a globally connected economy, including breakdown of core IT systems, product recalls or quality issues, terrorism or political rioting or environmental pollution. 
 
Both cyber and BI risks are increasingly interlinked as ransomware attacks or accidental IT outages often result in disruption of operations and services costing hundreds of millions of dollars, said AGCS, with cyber incidents ranking as the BI trigger most feared by businesses globally. Meanwhile, BI is seen as the biggest cause of financial loss for businesses after a cyber incident.
 
“Businesses across Asia Pacific are deeply concerned about the impact of business interruption, which can be a consequence of the other top risks in the region, cyber and natural catastrophes. The risk of BI is heightened by today’s increasingly interconnected and global business environment,” said AGCS Asia Pacific regional CEO Mark Mitchell. “Almost all large property insurance claims include a major BI element and the average BI claim of over $3m is almost 40% higher than an average direct property loss.” 
 
Cyber – growing awareness and losses
Increasing concern over cyber incidents follows a watershed year of activity in 2018, as a majority of countries surveyed in Asia Pacific ranked cyber within their top two risks. Notable incidents within the region include hacks of Cathay Pacific Airways as well as Apple supplier Taiwan Semiconductor Manufacturing Company.
 
“Cyber risk has been a major risk for a number of years, but as with any new risk it has struggled with awareness,” said AGCS deputy global head of cyber Marek Stanislawski. “We have now reached a point where cyber is as equally concerning for companies as their major traditional exposures.” 
 
Cyber crime now costs an estimated $600bn a year – up from $445bn in 2014. This is three times as much as a 10-year average economic loss from natural catastrophes of $208bn. While criminals use more innovative methods to steal data, commit fraud or extort money, there is also a growing cyber threat from nation states and affiliated hacker groups targeting critical infrastructure providers or stealing valuable data or trade secrets from companies. Cyber incidents are increasingly likely to spark litigation, including securities and consumer class actions. Data breaches or IT outages like can generate large third party liabilities as affected customers or shareholders seek to recoup losses from companies.
 
Nat CAT still top three
Nat CAT (28% of global responses, 32% of regional responses) again ranks third globally and regionally despite 2018 being a more benign version of 2017’s peak catastrophe losses, although economic losses still totalled close to $150bn. Major incidents in Asia Pacific included Typhoons Jebi, the most expensive typhoon on record and Mangkhut, as well as floods in India and earthquakes in Japan, Indonesia, and Papua New Guinea. 
 
Increased natural catastrophe activity is also leading to a rise in climate change risk perception. Respondents fear that recent natural catastrophe and extreme weather activity could be a harbinger of increasing financial losses and disruption, ensuring climate change/increasingly volatility of weather (#8 both globally and regionally) rises to its highest-ever position in the global risk ranking. 
 
Changes in legislation and regulation (#4 with 23% of responses) is the largest climber (two ranks from #6 last year) regionally, driven mainly by global trade wars like the US-China one and ongoing uncertainty over Brexit, resulting in risks to supply chains and trade diversion.
 
Loss of reputation and brand value (#9 with 13% of responses) rises one spot regionally from 2018. Faulty or defective products can have a large negative impact on brand image. With a larger emphasis and awareness of the value of intangible assets regionally, it is also no surprise to see. 
 
Product recall (#10 with 10% of responses) enters the top 10 Asia Pacific risks for the first time ever. A 
 
Top business risks in Asia-Pacific
  1. Business interruption (incl. supply chain disruption) (38%)
  2. Cyber incidents (37%)
  3. Nat CAT (32%)
  4. Changes in legislation and regulation (23%)
  5. New technologies (22%)
  6. Market developments (22%)
  7. Fire, explosion (17%)
  8. Climate change/increasing volatility of weather (15%)
  9. Loss of reputation or brand value (13%)
  10. Product recall, quality management, serial defects (10%)

Top global business risks 

  1. Business interruption (incl. supply chain disruption) (37%)
  2. Cyber incidents (37%)
  3. Nat CAT (28%)
  4. Changes in legislation and regulation (27%)
  5. Market developments (23%)
  6. Fire, explosion (19%)
  7. New technologies (19%)
  8. Climate change/increasing volatility of weather (13%)
  9. Loss of reputation or brand value (13%)
  10. Shortage of skilled workforce (9%)
 
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