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| Figure 1: Top risks (Source: Allianz SE/Allianz Global Corporate & Specialty SE: Allianz Risk Barometer 2016 Appendix, 2016, p. 1) |
A first look at the summary (see figure 1) does not reflect any surprises - and on the other hand leads to stop for a second: Two risks are new, they seem to be 'rising stars', since they were not existing in the previous study from 2015. Market development, which comprises volatility, intensified competition, and market stagnation, and macroeconomic development (i.e. austerity programs, commodity price increase, inflation/deflation) seem to be new. However, in former reports the individual risks of market respectively macoeconomic development had been ranked seperately - and are now ranked collectively. This leads to a shift in the top 10 list, and makes it difficult to compare the current results with the findings from 2015.
Besides that, the top 10 risks do not bear, as said, any surprises. Business interruption is still the 'hottest' risk. (We will look at some details in a minute.) The aforementioned market development is seen as second important risk. Cyber incidents are of growing concern: After 12 % in 2014 and 17 % in 2015, now 28 % of the respondents see cyber incidents as an important risk. The growth rate of those risks is alarming. (We will get back to cyber risks later in this article.) Both natural catastrophes and fire/explosion are seen to lose importance in relation to other risks. Changes in legislation and regulation also seems to be of lower significance, because it is ranked lower than in 2015. This, however, is a pitfall of the newly 'created' (i.e. compiled) risks - indeed the percentage of experts seeing changes in legislation and regulation as a risk, has risen from 18 % up to 24 %. Thus, the 'trend' shown in the rightmost column is a misleading and not fully correct information for some of the risks.
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| Figure 2: Geopolitical risks (Source: Allianz SE/Allianz Global Corporate & Specialty SE: Allianz Risk Barometer - Top Business Risks 2016, 2016, p. 5) |
A second critical remark must be made about the classification of risk. Of course, an exact classification that avoids any grey or fuzzy areas is almost impossible. There are numerous schemes for classification, but almost non of them allows for a selective clustering of risks. In the 2016 risk barometer we can observe the problems of non-selective risk groups. Although there is one risk category 'business interruption' (THE no 1 risk), there are other classes of risks, that integrate or at least lead to some portions of business interruption. For example, when looking at details of political risks, we can see the cause effect relationship of those risks with business interruptions. When asked what risks within the context of geopolitical instability businesses were most worried about, more than half of the respondents mentioned impact on supply chains (see figure 2). Also, other risks, such as natural catastrophes, fire and explosion, and cyber incidents can lead to severe business interruptions (see figure 3). Thus, due to the fuzzy classification and some implicit cause effect relationships within the top risks, the ranking of the risks is not fully explicable.
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| Figure 3: Major causes of business interrpution (Source: Allianz SE/Allianz Global Corporate & Specialty SE: Allianz Risk Barometer - Top Business Risks 2016, 2016, p. 6) |
Besides nat cat's and fires or explosions, business interruption risks are created within a supply chain: As figure 3 shows, also supplier failure is one of the top 3 causes of business interruptions that companies fear most.
In the future, cyber incidents are seen as heavily increase the threat of business interruptions: 59 % of the respondents see cyber incidents as major future threat.
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| Figure 4: Causes of economic loss after cyber incidents (Source: Allianz SE/Allianz Global Corporate & Specialty SE: Allianz Risk Barometer - Top Business Risks 2016, 2016, p.11) |
Cyber incidents are not only cyber attacks (or cyber crime in general), but also data breaches and general IT failures. Industry 4.0 (or the 'Internet of Things') and its underlying trend of continuing and accelerating digitalization is a development that - besides increased effectiveness and efficiency - lead to new and more risks. Those possible negative impacts that companies fear most are shown in figure 4. As can be seen from figure 5, cyber incidents can lead to economic losses due to different reasons. Reputational loss is the most important cause for economic losses, followed by business interruptions.
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| Figure 5: Impacts of ongoing digitalization (Source: Allianz SE/Allianz Global Corporate & Specialty SE: Allianz Risk Barometer - Top Business Risks 2016, 2016, p.12) |
If companies look into the long-term future, i.e. 10 years or later, cyber incidents are seen as the top emerging risk: 33 % of the experts see such cyber incidents as the most important future risk. This fits to the result mentioned earlier which described the rise of cyber risks as top current risks. Behind cyber incidents, managers see business interruptions (11 %) and terrorism (9 %) as emerging risks in the far future.
The study results (Allianz Risk Barometer - Top Business Risks 2016 and Allianz Risk Barometer 2016 Appendix) can be downloaded from AGCS' website: http://www.agcs.allianz.com/insights/white-papers-and-case-studies/allianz-risk-barometer-2016/
