Posted by Singapore: For the first time ever, Cyber incidents (35% of responses) ranks as the top business risk in Asia-Pacific in the ninth Allianz Risk Barometer 2020. While, Business interruption (BI) (34% of responses) came second place in terms of business risk.
Asia-Pacific region is no different from a global trend where awareness on cyber threat is seen growing rapidly in recent years, as per Allianz Risk Barometer 2020 findings.
This is driven by companies increasing reliance on data and IT systems and a number of high-profile incidents. It is a stark change from seven years ago when it did not even feature in the top 10 risks on the mind of risk managers regionally.
Climate change (#3 with 25%) and Political risks and violence (debuting in the top 10 at #10 with 9%) are the biggest climbers regionally, underlining global warming and the business interruption that accompanies civil unrest as increasing concerns for companies and nations.
The annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of a record 2,718 experts in over 100 countries including CEOs, risk managers, brokers and insurance experts.
“For the first time, Cyber overtakes Business Interruption as the top risk for businesses in Asia Pacific,” said Mark Mitchell, Regional CEO – Asia Pacific, AGCS.
“While 2019 saw no major global cyber incidents in the vein of past events like WannaCry and NotPetya, businesses are increasingly cognizant of the costs associated with being a victim of a cyberattack, with IBM estimating the average cost of a data breach being slightly under $4 million,” added Mitchell.
Climate change suddenly has become third major risk in the region. However, it was on the 8th spot in the previous study. “It is reflecting the increased scrutiny and pressure that businesses are under to operate in a sustainable manner,” pointed out Mitchell.
Cyber risks continue to evolve
In addition to being the top risk regionally and globally, Cyber incidents is among the top three risks in 80% of the countries surveyed in Asia Pacific, with India and South Korea ranking it as the top business risk.
Data breach: Businesses face the challenge of larger and more expensive data breaches, an increase in ransomware and spoofing incidents, as well as the prospect of privacy-driven fines or litigation after any event.
A mega data breach – involving more than one million compromised records – now costs on average $42 million, up 8% year-on-year.
“Incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands,” said Marek Stanislawski, Deputy Global Head – Cyber, AGCS
“Five years ago, a typical ransomware demand would have been in the tens of thousands of dollars. Now they can be in the millions,” pointed out Stanislawski.
Extortion demands are just one part of the picture: Companies can suffer major BI losses due to the unavailability of critical data, systems or technology, either through a technical glitch or cyberattack.
“Many incidents are the results of human error and can be mitigated by staff awareness trainings which are not yet a routine practice across companies,” added Stanislawski.
Business interruption — an undiminished threat with new causes
After seven years at the top, BI drops to the second position in the Allianz Risk Barometer. However, the trend for larger and more complex BI losses continues unabated.
Causes are becoming ever more diverse, ranging from fire, explosion or natural catastrophes to digital supply chains or even political violence. In Australia, the total damage and economic loss caused by wildfires from September 2019 and into 2020 is estimated to cost $110 billion.
Civil unrest: Businesses are also increasingly exposed to the direct or indirect impact of riots, civil unrest or terrorism attacks. Escalating civil unrest in Hong Kong has resulted in property damage, BI and general loss of income for both local and multinational companies.
As shops remained closed for months, customers and tourists stayed away or employees couldn’t access their workplace due to safety concerns. The consequence is a business interruption without physical losses but high financial ones.
Climate change brings added risk complexity
Climate change is a huge riser regionally, jumping to third from eighth last year, driven by risk management experts in countries and territories such as Australia, Hong Kong, India and Indonesia.
Wildfires: Ongoing wildfires engulfing Australia, as well as severe floods in Jakarta have certainly hammered home the consequences of increasingly volatile weather for businesses.
An increase in physical losses is the exposure businesses fear most (49% of responses) as rising seas, drier droughts, fiercer storms and massive flooding pose threats to factories and other corporate assets, as well as transport and energy links that tie supply chains together.
Further, business are concerned about operational impacts (37%), such as relocation of facilities, and potential market and regulatory impacts (35% and 33%).
Companies may have to prepare for more litigation in future — climate change cases targeting ‘carbon majors’ have already been brought in 30 countries around the world, with most cases filed in the US.
“There is a growing awareness among companies that the negative effects of global warming above two degrees Celsius will have a dramatic impact on bottom line results, business operations and reputation,” said Chris Bonnet, Head – ESG Business Services, AGCS.
According to Bonnet, failure to take action will trigger regulatory action and influence decisions from customers, shareholders and business partners.
“Therefore, every company has to define its role, stance and pace for its climate change transition — and risk managers need to play a key role in this process alongside other functions,” stated Bonnet.
Climate change (#7 with 17%) is moving up in global rankings vis-à-vis the previous year but not as drastically as Asia-Pacific. It’s a reflection of the effects of global warming have been more severely felt closer to home.
Changes in legislation and regulation (#3 with 27%) rounds up the top 3 globally as businesses are increasingly concerned over the US-China trade war and Brexit.
“The Allianz Risk Barometer 2020 highlights that cyber risk and climate change are two significant challenges that companies need to watch closely in the new decade,” said Joachim Müller, CEO – AGCS.
“This will likely have a critical impact on their companies’ operational performance, financial results and reputation with key stakeholders,” he continued.
“Preparing and planning for cyber and climate change risks is both a matter of competitive advantage and business resilience in the era of digitalization and global warming,” concluded Müller.