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Active management is needed

28 May 2018 Jonathan Faurie

Over the past two years, risk management has been a topic that has come under increased focus on many boards.

This is a welcome turn of events as it allows companies to gain a deeper understanding of the risks that they face as well as how they can overcome these risks. 

Taking centre stage

According to the recently released Allianz Risk Barometer, business interruption is a risk that has become a major concern in many markets. 

“Business interruption is rated as a top risk in Canada, China, France, Germany, and Hong Kong. Further, it is rated the second biggest risk in South Africa,” said Thusang Mahlangu, CEO of Allianz Global Corporate & Speciality (AGCS) Africa. 

The Allianz Risk Barometer points out that whether it results from factory fires, destroyed shipping containers, or cyber incidents, business interruption can have a tremendous effect on a company’s revenues. 

Yet, its impact is one of the hardest risks to measure. A severe interruption can even have a terminal impact, particularly for smaller companies. Moreover, increasing interconnectivity means the potential for higher losses is growing. Business interruption can be a consequence of many of the other top risks. 

Business interruption losses for businesses can often be much higher than the cost of any physical damage. The average large business interruption property insurance claim is now in excess of $2 million in global markets. This is more than a third higher than the average direct property damage loss. 

The Risk Barometer points out that as many businesses transition from being rich in physical assets to deriving more value from intangible assets and services, business interruption is increasingly being triggered by non-traditional risk exposures which don’t cause physical damage but result in lost income. 

Heavy hitter

While cyber crime is not rated as the top global risk. It is an important enough concern to feature as the second biggest risk in many countries around the world. It is rated as the top risk in South Africa. 

Economic losses from the WannaCry attack could eventually hit $8 billion, according to Cyence Risk Analytics. There was also a major cyber attack on Equifax where cyber criminals had access to sensitive personal details of almost half of the population of the US. 

Just like a natural disaster, a single cyber attack can potentially impact hundreds of companies, leading to severe business interruption and loss of customers and reputation. It is no wonder that cyber incidents continue a six year climb up the Allianz Risk Barometer in 2018 – cyber is now the top risk in 11 countries. 

Mitigation techniques

The fact that there is a focused dialogue on risk management means that companies are making a concerted effort to address the challenges that they face on a daily basis. But some of these challenges are hard to overcome. It is also impossible to address them in a quick and simple manner. 

“Business interruption is a serious business risk that needs to be focused on through the implementation of a well thought out business continuity plan. This plan needs to be tested on a continuous basis and it needs to be formulated to cater for new threats. It is important to note that a business interruption claim can be up to three times costlier than a physical damage claims. Companies should not take this risk lightly,” said Mahlangu. 

Addressing cyber risks also requires a dedicated approach from companies. 

“There is increasing interconnectivity as companies expand and grow in different parts of the world. Because of the operations in these companies, data protection needs to become more stringent. We need to view data in different ways. We need to look at how we store data, move data and dispose of data. We need to create a culture of cyber security and a think tank approach when it comes to tackling risk,” said Nobuhle Nkosi, Head of Financial Lines AGCS Africa. 

Editor’s Thoughts:
Company executives need to take control when it comes to decisions surrounding risk mitigation. They cannot simply leave it to risk managers. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by andy mizen, 28 May 2018
Hi Jonathan,

I would like to help the readers with fire safety and business continuity. I have over 23yrs experience in the field, including with the London Met Police and with Marsh Mclennan Insurance.

kind regards
Andy Mizen
www.firesafetyconsulting.co.za
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