by Granville Triumph
What’s the biggest risk to your business? Depending upon your geographic location or industry sector, the answer might range financial pressures to an inability to find skilled talent to competitive forces. But the one commonality for businesses this year is a climate of uncertainty, with concerns about unpredictable changes and emerging new threats that are poorly understood.
That’s the key takeaway from the sixth annual Allianz Risk Barometer, a study that analyzes corporate risks globally as well as by region, country, industry and size of business. For the fifth year in a row, business interruption topped the list of perils, cited as the No. 1 risk by 37 percent of respondents.
It’s not just because business interruption can lead to significant financial losses. Multiple new triggers are emerging, especially intangible perils such as cyber incidents. This trend is driven, in part, by the rise of the Internet of Things (IoT) and the ever-greater interconnectivity of machines, companies and supply chains, which can easily multiply losses in case of an incident.
Market volatility is the second most important business peril in 2017, cited by 31 percent of respondents. It is the top concern in the aviation/defense, financial services, marine and shipping, and transportation sectors. In order to anticipate any sudden changes of rules that could impact markets, companies will need to invest more resources into monitoring politics and policy-making around the world. According to trade credit insurer Euler Hermes, there have been 600 to 700 new trade barriers introduced globally every year since 2014.
At the same time, increasing reliance on technology and automation is transforming and disrupting companies across all industry sectors. While digitalization is bringing new opportunities, it is also shifting the nature of corporate assets from mostly physical to increasingly intangible. As a result, cyber threats ranked a close No. 3 globally, cited by 30 percent of respondents, climbing to No. 2 across the Americas and Europe. It is the top concern globally for businesses in the IT, telecommunications and retail/wholesale sectors.
The threat now goes far beyond hacking and privacy and data breaches, although new data protection regulations will exacerbate the fallout from these threats. Time is running out for businesses to prepare for the implementation of the new General Data Protection Regulation in 2018 — although the cost of compliance will be high, the penalties for not doing so could be even higher.
Meanwhile, increasing interconnectivity and sophistication of cyberattacks poses not only a huge direct risk for companies but also an indirect threat via exposed critical infrastructures such as IT, water and power supplies. Then there is the threat posed by technical failure or human error, which can lead to long lasting and widespread business interruptions. In a digitalized production 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.
Smaller companies may be underestimating cyber risk. In this category, cyber threats rank only sixth. However, the impact of a serious incident could be much more damaging for such firms.
Awareness of threats is the first step toward protecting your business. In my next post, I’ll discuss some of the steps you can take to guard against risks and minimize their impact.