Allianz Risk Barometer 2014

Sydney, 16 January 2014

Australian companies face increased risks from regulatory change and cyber crime

Regulatory change one of the highest business risks facing Australian companies.

Concern about regulatory risk ranks second to only business interruption and supply chain risk.

Regulatory risk ranked higher in Australia than in any of the other more than 30 countries surveyed.

Cyber and reputational loss risks are significantly moving up the rankings.

Globally, business interruption and supply chain risks, natural catastrophes and fire/explosion (the top 3) are the principal risks that continue to occupy the attention of global companies at the start of 2014.

For example, business interruption and supply chain losses accounted for around 50-70% of all insured property losses, as much as $US 26 billion a year for the insurance industry based on 2013 data. As in last year’s Risk Barometer, they represent the number one concern for businesses around the globe, including in Australia, Brazil, France, Germany, the UK and the US.

However, for Australian business, changes in legislation and regulation stand out as the second highest risk, ranked only after business interruption and supply chain risk. Regulatory risk has moved to near the top of the ranking compared to the 2013 survey, where it was ranked 8th. Regulatory risk was ranked higher as a business risk in Australia than in any of the other more than 30 countries surveyed.

For Australian business, regulatory change is regarded as a higher risk than natural catastrophes, cyber crime, and loss of reputation or brand value (eg from social media), even though the latter two have been trending higher up the rankings compared to last year.

Commenting on the Australian results, Niran Peiris, Managing Director of Allianz Australia, said, “the survey highlights the increasing complexity of business risks, including a combination of new technological, economic and regulatory risks, potentially creating a systemic threat for businesses. It is notable that regulatory risk features so prominently in the Australian context, ranking second in 2014 compared to only eighth last year.”

“At the industry level globally, regulatory change was the number one risk facing the power/utility sectors and financial services, the latter reflecting increasing supervisory intervention around the globe following the Global Financial Crisis. Locally, this may be the culmination of an increased regulatory proactivity by financial regulators and policymakers following the GFC and various investment-related financial collapses over recent years.”

“Regulatory change over recent years, as well as foreshadowed reviews or changes in the areas of financial services regulation and carbon taxation/renewable energy might also be impacting here.”

More generally, the report found that the global risk landscape is continuing to evolve at pace, becoming increasingly complex due to growing interdependency of different industries and processes. This, combined with the fact that inadequate internal processes are often the main factor behind companies suffering a crisis, means there is an increasing need for deployment of holistic, state-of-the art risk management and mitigation strategies.

Holger Schaeffer, General Manager of AGCS Pacific, said “identifying the impact of interconnectivity between different risks is a top priority for risk managers. Today’s business continuity plans must prepare for an increasing range of risk scenarios, which need to reflect the sometimes hidden knock-on effects. For example, a natural catastrophe can result in business interruption, IT-systems failure and power blackouts, among other perils.”

The 2014 Risk Barometer also highlights that businesses are more concerned about cyber and reputational risks than ever before. According to Allianz experts, the most heightened risk awareness in 2014 is around cyber and loss of reputation issues. Cyber is the biggest mover in this year’s Risk Barometer climbing up to rank 8 from 15, while reputation moved up to 6 from 10.

For Australia, the risks associated with cyber crime, IT failures and espionage ranked in fifth place in 2014. This category of risk did not even make the top ten in the 2013 survey. While, loss of reputation/brand value ranked third in 2014, up from fifth in 2013.
Many of the top 10 risks in the Risk Barometer are closely interconnected with a potential cumulative effect, particularly changes in legislation, cyber risk and loss of reputation.

“Still, even with the best risk management framework, companies will never be 100% safe from glitches in their IT-infrastructure, failure of internal processes or external cyber-attacks that result in network interruption or data loss. Each business needs to decide whether it can afford to carry that risk itself or transfer it by taking out a cyber-insurance policy”, Mr Schaefer said.

For a copy of the report and the country results attachment, visit the following links.

About Allianz Global Corporate & Specialty

Allianz Global Corporate & Specialty (AGCS) is the Allianz Group's dedicated carrier for corporate and specialty insurance business. AGCS provides insurance and risk consultancy across the whole spectrum of specialty, alternative risk transfer and corporate business: Marine, Aviation (incl. Space), Energy, Engineering, Financial Lines (incl. D&O), Liability and Property insurance (incl. International Insurance Programs).

Worldwide, AGCS operates in 28 countries with own units and in more than 160 countries through the Allianz Group network and partners. It employs more than 3,500 people and provides insurance solutions to more than half of the Fortune Global 500 companies, writing a total of €5.3 billion gross premium worldwide annually (2012).

The Risk Barometer

Conducted by Allianz Global Corporate & Specialty (AGCS), the Allianz Group’s global insurance business that covers specialised risks and large corporates, Allianz has released its’ 2014 Risk Barometer. The Risk Barometer is a global survey of the top ten risks facing businesses in 2014. The results are based on responses from over 400 risk consultants, insurance underwriters, senior managers and claims experts in the corporate insurance segment of both AGCS and local Allianz entities in over 30 countries, covering Europe, Asia and North and South America.