Cyber the next battle line for your business

Cyber incidents stand out as the top risk facing businesses, no matter which way you slice the data. The threat of data breach, cybercrime and information technology failures or outages took top position on the 2022 Allianz Risk Barometer whether presented globally; for Africa and the Middle East only; or for of individual Africa markets such as Kenya, Nigeria and South Africa.

The new normal: business interrupted

Commenting during the launch of the comprehensive survey, Senzile Ndlozi, Business Development Manager at Allianz Global Corporate & Specialty (AGCS) Africa identified ‘business interrupted’ as a dominant theme for both global and local risk environments. “The impact of pandemic, combined with cyber threats and extreme weather events have tested business’ resilience over the past year, and continue to affect the entire supply chain,” she said. The survey, which reflects the views of 2650 experts across 89 countries and 22 industry sectors, aims to identify the risks that keep business leaders awake at night. Not surprisingly, the dominant risks are those with the potential to cause the greatest disruption to business continuity. 

Many among our readership would default to ‘pandemic outbreak’ as the major threat to their business and family through 2022, but the risk landscape is evolving. As such, this category has dropped from position two on the global risk ranking in 202, to position four this year. “Firms are less worried about Covid-19 and seem to be easing their way through it; the majority of businesses [surveyed] are indicating that they are relatively comfortable about managing [this and] future pandemics,” said Ndlozi. Cyber incidents have been elevated to the number one position on the 2022 Allianz Risk Barometer, with 44% of respondents indicating their growing concerns over ransomware and other forms of cybercrime. 

‘Business interruption including supply chain challenges’ occupied the number two position on the ranking. It remains one of the most feared consequences of risk events and has been among the top three concerns for most of the 11 years the barometer has been produced. “The pandemic exposed how fragile and complex the modern supply chain is, and [the latest barometer illustrates] how a number of interconnected risks can come together and cause major problems for businesses,” explained Ndlozi. Examples include the disruptions caused by the recent Suez canal blockage and the ongoing shortage of semiconductors in the aftermath of lockdown and pandemic. 

An increasingly interconnected risk environment

Global risks are increasingly interconnected, a fact confirmed by a closer inspection of the top 10 risks. For example, ‘natural catastrophe’, the third highest risk for 2022, is intrinsically linked to ‘climate change’, which showed up in sixth position. Both climate change and natural catastrophe feed into business interruption, with the former risk contributing to the higher frequency and severity of extreme weather events. This in turn gives rise to the many natural catastrophe losses each year. AGCS mentioned that globally insured catastrophe losses were expected to exceed US$100 billion in 2021, an amount already confirmed by large reinsurers. 

‘Changes in legislation and regulation’ occupied position five on the 2022 list, as global firms reflected on the growing burden of compliance within complex legal environments. This category could become more prevalent in coming years as pre-pandemic trade wars come back to the fore alongside the aggressive raft of economic and financial sanctions being announced consequent Russia’s move into Ukraine. 

Positions six through 10 on the global risk barometer include climate change; fire and explosion; market developments; shortage of skilled workforce; and macroeconomic developments. Instead of delving further into the bottom half of the list, we thought it prudent to compare risk perceptions in Africa and the Middle East (AME) with the global experience. 

As mentioned in the opening paragraph, cyber incidents topped both charts, with other similarities being business interruption in position two and changes in regulation and legislation in position five. The pandemic outbreak was of slightly higher concern in the African context, coming in at third… Many African economies are still wrestling with the consequences of pandemic on health and workforces as well as the impact of restrictions on movement. ‘Political risks and violence’, which did not feature globally, occupied position four on the AME rankings. “There is a lot of political instability on the continent,” noted Ndlozi, briefly commenting on the widespread civil commotion that tore through parts of South Africa in July 2021. 

Eskom sullies another top-10 list

Another Africa-specific concern featured in position six on the ranking, under the heading critical infrastructure blackouts. The risk attaching to ailing infrastructure hardly needs explanation in the South African context, with local businesses painfully aware of the consequences of inconsistent electricity supply. AGCS Africa suggested that this risk could become more prevalent in coming years as attention turns to infrastructure backlogs in areas such as transportation and water and sanitation. Surprisingly, climate change only featured at position 10 for AME compared to position six globally. “Government and the private sector are in conversation as to how to manage climate change and contribute towards lower carbon emissions,” said Ndlozi. 

Drilling down to a country level, we can confirm that South Africa also ranked cyber incidents and business interruption at position one and two, with pandemic outbreak pushed back to position five to make way for the more tangible infrastructure and political threats. We can thank Eskom for elevating critical infrastructure blackouts to position three, and government for creating the environment in which political risks and violence made it to position four on the SA-only rankings. 

Bryte insights for insurance stakeholders

The question of how businesses position for evolving risks is best left to insurance and risk management professionals, as explained in an insightful piece written by Nicholas Francis, Chief Marketing Officer at Bryte. His summary of insurance risks dominating South Africa’s 2022 business agenda was in line with the risks contained in the 2022 risk barometer. The pieces started by describing the ongoing trend towards hybrid or fully-remote work environments that “translated to more opportunities for hackers to gain access to corporate systems through malicious software or social engineering”. In other words, cyber incidents in position one. 

Bryte suggested that business’ comprehensive cyber security measures be accompanied by insurance covers that respond to the growing range of risk exposures. “Brokers have always served as the link between the insurer and the customer, and in the context of the fourth industrial era … their role is becoming more advisory,” wrote Francis. “Enterprising brokers can capitalise on this [development] by educating their clients on the myriad of opportunities and risks in the market that needs to be detected early and managed efficiently for their organisations to emerge stronger at the other end”. 

An important safety net

Risk number two was introduced under the sub-title ‘business unusual thanks to business interrupted’ by the likes of pandemic and lockdown. “The worldwide supply chain disruptions, which are likely to continue into 2022 but at a lower rate, serve as a good example of the extent of such interruptions,” noted Francis, before elaborating on the domestic risks introduced by load shedding and water supply interruptions. Business interruption insurance was singled out as an appropriate cover solution for a range of exposures including “predictable risks such as fire and storm damage and infrastructure failure, amongst others”. 

We close today’s newsletter with some thoughts on how businesses can mitigate and transfer the risks posed by cyber, business interruption and climate change (and the accompanying higher frequency and severity of natural catastrophes events). “While the waves of change in the environmental, social and economic landscape may be unsettling, it is important for business to maintain a pragmatic approach to risk identification and management,” concluded Francis. He encouraged businesses to seek out insurance brokers and risk engineers to expand their awareness of and response to common and emerging risks. 

Writer’s thoughts:  
When you started reading this newsletter, you probably immediately thought: “Argh no, not another list of risks to worry over!” The reality is that each of us, whether from an individual or business perspective, must go about our daily grind within a prevailing risk context. Do you agree that cyber incidents and business interruption are top priorities for risk managers and insurance professionals? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.