By Marcus Leach
Which risks do businesses fear the most in 2012? Economic risks, business interruption and destructive natural catastrophes are the most pressing business risks for many companies.
Cyber risks, in turn, remain widely underestimated. These are some of the results of a study conducted by Allianz Global Corporate & Specialty (AGCS).
AGCS, the global corporate and specialty insurer in the Allianz Group, carried out a survey among its risk consultants in the second half of 2011 to identify the risks they expect to trouble companies most in future.
The most frequently mentioned type of risk was economic risk (21 percent of respondents). Specifically, companies are concerned about a looming recession and the sovereign debt crisis as well as about rising commodity prices and foreign currency fluctuations.
Business interruption ranks second (14 percent of respondents). Centralised procurement, global purchasing, increasing outsourcing to suppliers and just-in-time production reduce costs, but also render companies more vulnerable to process interruptions.
According to the AGCS survey, natural catastrophes are ranked third among the greatest business risks for 2012. From floods and torrential rains to hurricanes, typhoons or earthquakes — economic development and technological progress multiply the cost of natural catastrophes. In fact, insured claims related to weather-related natural catastrophes have increased from USD 5 billion to more than USD 40 billion over the last 30 years.
Closely interconnected risks produce chain reactions
Each individual risk poses a threat to business success. However, the AGCS study also shows that risks increasingly cannot be seen in isolation.
“In today’s interconnected and globalized world, risks are closely interrelated and create knock-on effects,” explains AGCS risk engineer Michael Bruch.
For many companies, he says, the year of 2011 represented a “perfect storm” as different risks occurred together. For example, natural catastrophes caused immense physical damage and widespread business interruption in the Asia-Pacific region.
But production lines in Europe also temporarily came to a halt when supplies from Asia failed to arrive on time. At the same time, the sovereign debt crisis has caused the economic environment in many developed economies to deteriorate — along with the sales outlook in many sectors.
Regional differences: Asia fears natcats, while UK is worried about over-regulation
The global survey of AGCS risk engineers also highlights regional differences in risk assessments. The risk of natural catastrophes is most feared by companies in Asia-Pacific — a fear sadly justified by the earthquake and tsunami in Japan or the recent flooding in Thailand. Businesses in these countries are also concerned about political risks, including protectionism and state intervention.
In Germany, complexity risks feature prominently: In complex industrial projects, defective product designs and inadequate internal control systems may lead to compromised effectiveness or a series of losses. In the UK, companies are more worried about regulatory issues.
Around the world, companies show relatively little concern about IT risks (only 1 percent of the surveyed AGCS experts rate this as a key client concern). In fact, however, IT failures — resulting from hacker attacks or deficient internal processes — can quickly entail follow-on costs and revenue losses in the millions.
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