Allianz Insurance Group Risk Barometer
The multibillion-dollar insurance group Allianz publishes a very informative risk barometer each year. The methodology of the survey is as follows:
The 12th Allianz Risk Barometer incorporates the views of 2,712 respondents from 94 countries and territories. The annual corporate risk survey was conducted among Allianz customers (businesses around the globe), brokers and industry trade organizations. It also surveyed risk consultants, underwriters, senior managers, claims experts, as well as other risk management professionals in the corporate insurance segment of both AGCS and other Allianz entities.
Respondents were questioned during October and November 2022. The survey focused on large- and small- to mid-size companies. Respondents were asked to select the industry about which they were particularly knowledgeable and to name up to three risks they believed to be most important.
Most answers were for large-size companies (>$500mn annual revenue) [1,281 respondents, 47%). Mid-size companies ($250mn to $500mn revenue) contributed 519 respondents (19%), while small-size enterprises (<$250mn revenue) produced 912 respondents (34%). Risk experts from 23 industry sectors were featured.
Cyber, Business Interruption and Macroeconomic Developments Results Summary
The Insurance Journal did a nice summarization of the results below with Cyber, Business Interruption and Macroeconomic Developments being the top three areas of concern.
I found it of interest that political risks were 10 out of 10 with fully active military operations ongoing that impact most of the globe at some level, especially with the large percentage of the respondents being large companies with assumed international operations of some sort. To further that, one of the biggest threats in 21’st century warfare that was ongoing even before the current physical crisis in Ukraine is cyber threat. To me, they are intertwined.
Business interruption is by far the most important, yet often misunderstood and ignored. A sad but salient example of this is 9/11. Of all the losses paid out for the event, 30% was in property and 33% in business interruption losses. This is also especially true when business interruption is tied to a cyber event.
Cyber and Business Interruption Top 2023 Threats: Allianz Risk Barometer
According to Allianz’s Risk Barometer 2023, cyber incidents and business interruption rank as the biggest company concerns for the second year in a row.
At the same time, macroeconomic developments such as inflation, financial market volatility and a looming recession, as well as the impact of the energy crisis, are the top risers in this year’s list of global business risks.
Full rankings:
Cyber incidents (34%)
Business interruption (34%)
Macroeconomic developments (25%)
Energy crisis (22%)
Changes in legislation and regulation (19%)
Natural catastrophes (19%)
Climate change (17%)
Shortage of skilled workforce (14%)
Fire, explosion (14%)
Political risks and violence (13%)
*Percentage of all participants (2,712) who responded to the Allianz Risk Barometer. More than one risk could be selected.
“For the second year in a row the Allianz Risk Barometer shows that companies are most concerned about mounting cyber risks and business interruption,” said AGCS Chief Executive Officer Joachim Mueller. “At the same time, they see inflation, an impending recession and the energy crisis as immediate threats to their business. Companies – in Europe and in the U.S. in particular – worry about the current ‘permacrisis’ resulting from the consequences of the pandemic and the economic and political impact from ongoing war in Ukraine. It’s a stress test for every company’s resilience.”
He added the positive news is that, as an insurer, “we see continuous improvement in this area among many of our clients, particularly around making supply chains more failure-proof, improving business continuity planning and strengthening cyber controls. Taking action to build resilience and de-risk is now front and center for companies, given the events of recent years.”
This year’s Allianz Risk Barometer is the 12th annual business risk ranking compiled by Allianz Group’s corporate insurer, Allianz Global Corporate & Specialty (AGCS), together with other Allianz entities. The report incorporates the views of more than 2,700 risk management experts in 94 countries and territories, including CEOs, risk managers, brokers and insurance experts.
Allianz reported the top four 2023 risks are broadly consistent across all company sizes globally, as well as across core European economies and the U.S. (energy crisis excepted). Risk concerns for businesses in Asia Pacific and African countries show some deviation, reflecting the different impact of the ongoing war in Ukraine and its economic and political repercussions.
Compared to last year, natural catastrophes fell three spots on the global list, and climate change dropped one. Pandemic outbreak ranked at No. 4 in 2022 and came in at No. 13 this year.
Political risks and violence entered the top 10 global risks in 2023, while shortage of skilled workforce rose to No. 8. Allianz reported that changes in legislation and regulation remain a key risk at No. 5, while fire and explosion dropped two positions from 2022.
Digital and disruption dangers
Allianz reported that cyber incidents, such as IT outages, ransomware attacks or data breaches, rank as the most important risk globally for the second year in succession – the first time this has occurred. Cyber incidents also rank as the top peril in 19 different countries, including Canada, France, Japan, India and the UK. It is the risk that most worries small companies.
“For many companies the threat in cyber space is still higher than ever and cyber insurance claims remain at a high level,” said Shanil Williams, AGCS chief underwriting officer, corporate, responsible for cyber underwriting. “Large companies have become accustomed to being targeted and those with adequate cyber security are able to repel most attacks more effectively. Increasingly, more small- and mid-size businesses are also being impacted. These tend to underestimate their exposure and need to continuously invest in strengthening their cyber control framework.”
According to the Allianz Cyber Center of Competence, the frequency of ransomware attacks remains elevated in 2023, while the average cost of a data breach is at an all-time high at $4.35 million and expected to surpass $5 million in 2023.
The conflict in Ukraine and wider geopolitical tensions are heightening the risk of a large-scale cyber-attack by state-sponsored actors. In addition, there is also a growing shortage of cyber security professionals, which brings challenges when it comes to improving security.
Allianz forecasts that for many countries, 2023 is likely to be another year of heightened risks for business interruption because many business models are vulnerable to sudden shocks and change, which in turn impact profits and revenues. Ranking No. 2 globally, business interruption is the No. 1 risk in countries such as Brazil, Germany, Mexico, Netherlands, Singapore, South Korea, Sweden and the U.S.
The scope of disruptive sources is wide. Cyber is the cause of business interruption companies fear most (45% of responses); the second most important cause is the energy crisis (35%), followed by natural catastrophes (31%). The skyrocketing cost of energy has forced some energy-intensive industries to use energy more efficiently, move production to alternative locations or even consider temporary shutdowns.
The resulting shortages threaten to cause supply disruption across critical industries in Europe, including food, agriculture, chemicals, pharmaceuticals, construction and manufacturing, although warm winter conditions in Europe and stabilization of the price of gas is helping to ease the energy situation.
A possible global recession is another likely source of disruption in 2023, with potential for supplier failure and insolvency. This is a particular concern for companies with single or limited critical suppliers. According to Allianz Trade, global business insolvencies are likely to rise significantly in 2023: +19%.
Macroeconomic malaise
Allianz reported that macroeconomic developments such as inflation or economic and financial market volatility rank as the third top risk for companies globally in 2023, up from No. 10 in 2022. It marks the first time this risk has appeared in the top three in a decade.
All three major economic areas – the United States, China and Europe – are in a crisis mode at the same time, albeit for different reasons, according to Allianz Research, which forecasts recession in Europe and the US in 2023. Inflation is a particular concern as it eats into the price structure and profitability margins of many companies. Like the real economy, the financial markets are facing a difficult year, as central banks drain excess system-wide liquidity and trading volumes even in historically liquid markets decline.
“2023 will be a challenging year; in purely economic terms, it is likely to be a year to forget for many households and companies. Nevertheless, there is no reason to despair,” said Ludovic Subran, chief economist at Allianz. “For one thing, the turnaround in interest rates is helping, not least for millions of savers. The medium-term outlook is also much brighter, despite – or rather because of – the energy crisis. The consequences, beyond the expected recession in 2023, are already becoming clear: a forced transformation of the economy in the direction of decarbonization as well as increased risk awareness in all parts of society, strengthening social and economic resilience.”
Risk risers and fallers
The energy crisis is the biggest risk riser in the Allianz Risk Barometer. It appears, for the first time, at the No. 4 ranking. Some industries, such as chemicals, fertilizers, glass, and aluminum manufacturing, can be reliant on a single source of energy – Russian gas in the case of many European countries – and are therefore vulnerable to disruption to energy supply or price increases.
If such base industries struggle, repercussions can be felt further down the value chain in other sectors. According to Allianz Trade, the energy crisis will remain the largest profitability shock for European countries in particular. At current levels, energy prices would wipe out the profits of most non-financial corporates as pricing power is diminishing amid slowing demand.
Driven by 2022 being another year of turmoil with conflict and civil unrest dominating the news, political risks and violence is a new entry at No. 10. Aside from war, companies are also concerned about increasing disruption from strikes, riots and civil commotion activity as the cost-of-living crisis affects many countries.
Despite dropping in the ranking year-on-year, natural catastrophes and climate change remain major concerns for businesses. In a year that included Hurricane Ian, one of the most powerful storms recorded in the US, record-breaking heatwaves, droughts and winter storms around the world, and $100bn+ of insured losses, they still rank in the top seven global risks.
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