Cyber incidents (39% of responses) ranks as the most important business risk globally in the ninth Allianz Risk Barometer 2020.
Awareness of the cyber threat has grown rapidly in recent years, driven by companies increasing reliance on data and IT systems and a number of high-profile incidents.
Seven years ago it ranked only 15th with just 6% of responses.
Climate change (#7 with 17%) is one of the biggest climbers globally underlining global warming as increasing concerns for companies and nations.
“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,” says Joachim Müller, CEO of AGCS.
“Of course, there are many other damage and disruption scenarios to contend with but if corporate boards and risk managers fail to address cyber and climate change risks this will likely have a critical impact on their companies’ operational performance, financial results and reputation with key stakeholders.
“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.”
More expensive data breaches
In addition to being the top risk globally, Cyber incidents is among the top three risks in many of the countries surveyed; in Austria, Belgium, France, India, South Africa, South Korea, Spain, Sweden, Switzerland, the UK and the US it also ranks as the top business risk.
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 US$42 million, up 8% year-on-year.
Marek Stanislawski, Deputy Global Head of Cyber, AGCS, says: “Incidents are becoming more damaging, increasingly targeting large companies with sophisticated attacks and hefty extortion demands.
“Five years ago, a typical ransomware demand would have been in the tens of thousands of dollars. Now they can be in the millions.”
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 cyber-attack.
“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,” says Stanislawski.
Growing awareness of climate impact
Climate change rises to its highest-ever position of seventh and is already in the top three business risks for the Asia-Pacific region overall, driven by risk management experts in countries and territories such as Australia, Hong Kong, India and Indonesia.
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, businesses 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,” says Chris Bonnet, Head of ESG Business Services at AGCS.
“Failure to take action will trigger regulatory action and influence decisions from customers, shareholders and business partners.
“Ignoring climate risk is more costly than grappling with it.
“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.”