Cyber threats and changes in legislation and regulation, including concerns around Brexit are considered the top risks by UK risk experts, according to the Allianz Risk Barometer 2019.
Cyber incidents (37% of responses) are neck-and-neck with Business interruption (BI) (37% of responses) as the top business risks globally*.
“Uncertainty around Brexit along with concerns around a potential increase in the regulatory burden and global trade disputes have made confidence fragile," said Tracey Hunt, Deputy CEO, Allianz Global Corporate & Specialty (AGCS), UK.
"UK businesses also continue to be occupied by the threat of cyber-attacks. The consequences of a major data beach have never been greater since the EU's General Data Protection Regulation (GDPR) came into force with data breaches potentially now resulting in huge fines.”
Shortages of skilled workers appears in the top 10 UK risks - at number 7 - for the first time, with factors such as Brexit uncertainty, changing demographics and a shallow pool of talent in the digital economy contributing to its rise.
Shortage of skilled workforce also appears for the first time among the 10 top business risks globally at 10; as well as in many countries in Central and Eastern Europe, US, Canada and Australia.
“Skilled workforce — and human capital more generally — has become the scarce resource of the digital economy,” says Ludovic Subran, Deputy Chief Economist of Allianz.
“Competition is fierce between companies to get new recruits with competencies in artificial intelligence, data science, or ‘frontier risk management’ such as managing cyber or reputational risk as most of these jobs did not exist 10 years ago. Even attractive salaries do not suffice as the pool of recruits with the needed skillset is limited and the urgency to onboard them does not allow for on-the-job training."
In the wake of mega data breaches and privacy scandals, major IT outages and the introduction of tighter data protection rules in the European Union and other countries, cyber risk is now a core concern for global businesses in 2019 and beyond.
Cyber incidents (37% of responses) are neck-and-neck with Business interruption (BI) (37% of responses) as the top business risks globally. Climate change (#8 with 13% of responses) and Shortage of skilled workforce (#10 with 9% of responses) are the biggest climbers globally.
At the same time, companies are more worried year-on-year about changes in legislation and regulation (#4 with 27% of responses) resulting in impacts such as Brexit, trade wars and tariffs. The annual survey on global business risk incorporates the views of 2,415 experts from 86 countries including CEOs, risk managers, brokers and insurance experts.
Business interruption remains the top threat for businesses worldwide for the seventh year running and is the top risk in countries such as the US, Canada, Germany, Spain, Italy and China.
Potential BI scenarios are becoming ever more diverse and complex in a globally connected economy, including breakdown of core IT systems, product recalls or quality issues, terrorism or political rioting or environmental pollution. Both cyber and BI risks are increasingly interlinked as ransomware attacks or accidental IT outages often result in disruption of operations and services costing hundreds of millions of dollars.
Cyber incidents rank as the BI trigger most feared by businesses (50% of responses), followed by fire (40%) and natural catastrophes (38%). At the same time, BI is seen as the biggest cause of financial loss for businesses after a cyber incident (69% of responses).
Increasing concern over Cyber incidents follows a watershed year of activity in 2018. “Cyber risk has been a major risk for a number of years, but as with any new risk it has struggled with awareness,” said Marek Stanislawski, Deputy Global Head of Cyber, AGCS. “We have now reached a point where cyber is as equally concerning for companies as their major traditional exposures.”
Cyber crime costs an estimated $600bn a year – up from $445bn in 2014.This compares with a 10-year average economic loss from natural catastrophes of $208bn – three times as much.
While criminals use more innovative methods to steal data, commit fraud or extort money, there is also a growing cyber threat from nation states and affiliated hacker groups targeting critical infrastructure providers or stealing valuable data or trade secrets from companies.
Cyber incidents are increasingly likely to spark litigation, including securities and consumer class actions. Data breaches or IT outages can generate large third party liabilities as affected customers or shareholders seek to recoup losses from companies.