Concern jumps over macroeconomic risks but cyber and BI retain top spots: Allianz Barometer
Macroeconomic risks and the energy crisis have shot up the ranking, but cyber and business interruption (BI) remain the top concerns of companies across the globe, according to the Allianz Risk Barometer 2023.
The poll of more than 2,700 risk management experts on key business risks found that cyber and BI remain the top two leading areas of worry this year, both on 34%.
But while focus on these risks remains strong, companies are turning their attention to immediate concerns and away from longer-term challenges such as extreme weather, the Barometer finds.
Macroeconomic developments – including inflation, financial market volatility and a looming recession – have risen from tenth place in the risk ranking last year to third in 2023, with 25% of respondents naming it a top five risk. The energy crisis was a new entry in the Barometer at number four and on 22%.
AGCS said these two risks have risen up the agenda as economic and political consequences of Covid-19 and the war in Ukraine war take hold. This new focus has seen natural catastrophe risk drop from third place last year to sixth in 2023, on 19%. Climate change fell one place to seventh and 19%. The biggest faller is pandemic risk, down to 13th place from fourth last year.
Changes in regulation and legislation (19%) remains the fifth most feared risk globally this year, with a shortage of skilled workers (14%) rising one place to eight. Fire and explosion (14%) fell two places to ninth, and political risk and violence (13%) complete the top ten risks, up from 13th place in 2022.
“For the second year in a row the Allianz Risk Barometer shows that companies are most concerned about mounting cyber risks and business interruption. At the same time, they see inflation, an impending recession and the energy crisis as immediate threats to their business. Companies – in Europe and in the US in particular – worry about the current ‘permacrisis’ resulting from the consequences of the pandemic and the economic and political impact from ongoing war in Ukraine. It’s a stress test for every company’s resilience,” said Allianz Global Corporate & Specialty (AGCS) CEO Joachim Mueller.
“The positive news is that as an insurer we see continuous improvement in this area among many of our clients, particularly around making supply chains more failure-proof, improving business continuity planning and strengthening cyber controls. Taking action to build resilience and de-risk is now front and center for companies, given the events of recent years,” he added.
The Allianz Risk Barometer is an annual business risk ranking compiled by AGCS together with other Allianz entities. This year it canvased the views of 2,712 risk management experts – including risk managers, CEOs, brokers and insurers – in 94 countries.
The 12th annual survey also finds that cyber and BI are the top two risks in Europe, with the energy crisis and macrodevelopment big risers to number three and four respectively. AGCS said these findings are fairly consistent across European countries.
Cyber incidents, such as IT outages, ransomware attacks or data breaches, ranks as the most important risk globally for the second year in succession. It also ranks as the top peril in 19 different countries.
Companies are most concerned about cyber data breaches (53%) and an increase in ransomware attacks (50%).
According to the Allianz Cyber Center of Competence, the frequency of ransomware attacks remains elevated this year. It also warns that the average cost of a data breach has hit an all-time high at $4.35m, and is expected to surpass $5m in 2023.
Shanil Williams, AGCS board member and chief underwriting officer for corporate, said during a press briefing that the conflict in Ukraine and wider geopolitical tensions have heightened the risk of large-scale cyberattacks by state-sponsored actors. And he expects this threat to remain elevated.
In addition, there is also a growing shortage of cyber security professionals, which brings challenges when it comes to improving security, said Williams.
“For many companies the threat in cyber space is still higher than ever and cyber insurance claims remain at a high level. Large companies have become accustomed to being targeted and those with adequate cyber security are able to repel most attacks more effectively. Increasingly, more small- and mid-size businesses are also being impacted. These tend to underestimate their exposure and need to continuously invest in strengthening their cyber control framework,” he added.
The Barometer also reveals that companies fear cyber (45%) more than any other cause of BI, followed by the energy crisis (35%) and natural catastrophes (31%).
AGCS warned that 2023 is likely to be another year of worrying BI risks. While the direct impact of Covid-19 on supply chains has eased, the war in Ukraine and fallout out from the pandemic are mounting problems. It said this is a particular concern for companies with single or limited critical suppliers.
A possible global recession is another likely source of disruption in 2023, with potential for supplier failure and insolvency, said AGCS. Allianz Trade thinks that global business insolvencies are likely to rise “significantly” by 19% in 2023.
Macroeconomic developments have appeared as a top three global risk in the Barometer for the first time in a decade. AGCS noted that all major economic areas – the US, China and Europe – are in crisis mode at the same time but for different reasons.
It warns that inflation is a particular concern because it is “eating” into the price structure and profitability margins of many companies. Like the real economy, the financial markets are facing a difficult year, as central banks drain excess system-wide liquidity and trading volumes, even in historically liquid markets, decline, continued AGCS.
Allianz Trade thinks that the energy crisis will remain the largest profitability shock for European countries in particular. At current levels, energy prices would wipe out the profits of most non-financial corporates as pricing power is diminishing amid slowing demand, it warned.
“2023 will be a challenging year; in purely economic terms, it is likely to be a year to forget for many households and companies. Nevertheless, there is no reason to despair,” said Ludovic Subran, chief economist at Allianz.
“For one thing, the turnaround in interest rates is helping, not least for millions of savers. The medium-term outlook is also much brighter, despite – or rather because of – the energy crisis. The consequences, beyond the expected recession in 2023, are already becoming clear: a forced transformation of the economy in the direction of decarbonisation as well as increased risk awareness in all parts of society, strengthening social and economic resilience,” he added.
