In the wake of mega data breaches and privacy scandals, major IT outages and the introduction of tighter data protection rules in the European Union, South Africa and other countries, cyber risk is now a core concern for businesses in 2019 and beyond.
According to the Allianz Risk Barometer 2019, Cyber incidents (37% of responses) are neck-and-neck with Business interruption (BI) (37% of responses) as the top business risks globally .
Climate change (#8 with 13% of responses) and Shortage of skilled workforce (#10 with 9% of responses) are the biggest climbers globally.
At the same time companies are more worried year-on-year about changes in legislation and regulation (#4 with 27% of responses) resulting in impacts such as Brexit, trade wars and tariffs.
The annual survey on global business risks from Allianz Global Corporate & Specialty (AGCS) incorporates the views of a record 2,415 experts from 86 countries including CEOs, risk managers, brokers and insurance experts
“Companies need to plan for a wide range of disruptive scenarios and triggers as this is where their big exposure lies in today’s networked society,” says Chris Fischer Hirs, CEO of AGCS.
“Disruptive risks can be physical, such as fire or storms, or virtual such as an IT outage which can occur through malicious and accidental means. They can stem from their own operations but also from a company’s suppliers, customers or IT service providers. Whatever the trigger, the financial loss for companies following a standstill can be enormous. New risk management solutions, analytical tools and innovative partnerships can help to better understand and mitigate the modern myriad of business interruption risks and prevent losses before they occur.”
Leading risks in Nigeria
Changes in legislation and regulation is the top risk in Nigeria with 41% responses, up by 8% from the 2018 results.
Market developments remains unchanged at #2 with 34% of responses.
In 2018 theft, fraud and corruption was at #1 but has now dropped to #3 with 30% responses. Loss of reputation or brand value at #6 with 23% responses emerged as a new risk in the top 10.
2018 was a turning point for global trade, according to Ludovic Subran, Chief Economist of Euler Hermes and Deputy Chief Economist of Allianz.
US tariffs went up to 5.2% from 3.5%, bringing them back to the mid-80s and breaking with a history of preferring more sophisticated protectionism, such as regulation, over tariffs.
Yet, the end-of-year trade truce with China is only postponing growing US China rivalry as the backdrop for multinationals in 2019.
As multilateral institutions struggle for a second wind, the rules of the games will be different for companies according to their shareholders, their location or the market they are after.
While Nigeria is not immune from the US China trade war, the country also needs to ensure that the 2019 elections are free and fair.
However, the country is a federation of states of varying size and economic power, encompassing a plethora of ethnic, tribal and religious groupings.
These overlapping ethnic and religious identities are often in conflict with Nigeria’s federal system, as customary authority continues to play a crucial role in the country.
Internal regional economic differences and endemic corruption pose ongoing threats to stability and inhibit effective policymaking.
In particular, these threats are indicated through religious differences and disputed claims on oil resources.
Disputes between state powers and indigenous groups (particularly in the oil-rich Niger delta) and the federal government over allocations of oil earnings have led to sharp divisions and lawlessness.
BI threats continue to evolve
Business interruption remains the top threat for businesses worldwide for the seventh year running and is the top risk in countries such as the South Africa, US, Canada, Germany, Spain, Italy and China.
Potential BI scenarios are becoming ever more diverse and complex in a globally connected economy, including breakdown of core IT systems, product recalls or quality issues, terrorism or political rioting or environmental pollution.
In Nigeria, BI is at #8 according to the Allianz Risk Barometer 2019 report.
“BI can lead to significant income losses, but also because multiple new triggers are emerging, especially non-physical damage or intangible perils, such as cyber incidents, and disruption caused by political violence and strikes. This trend is driven, in part, by the rise of the ‘Internet of Things’ (IoT) and the ever-greater interconnectivity of machines, companies and their supply chains which can easily multiply losses in case of an incident,” says AGCS Africa CEO Thusang Mahlangu.
Both cyber and business interruption risks are increasingly interlinked as ransomware attacks and accidental IT outages often result in disruption of operations and services costing over a hundred of millions of rands .
Cyber incidents rank as the BI trigger most feared by businesses (50% of responses), followed by fire (40%) and natural catastrophes (38%).
At the same time, BI is seen as the biggest cause of financial loss for businesses after a cyber incident (69% of responses).
In Nigeria, Cyber incidents is at #4 with 27% responses up from #5 in 2018, political risks and violence at #6 with 25% responses and business interruption at #7 with 18% responses is also a major concern for businesses in Nigeria.
New technologies, macro economic developments and power blackouts are the last three business risks affecting the Nigerian business sector according to the report.
Cyber – growing awareness, growing losses
Increasing concern over cyber incidents follows a watershed year of activity in 2018.
“Cyber risk has been a major risk for a number of years, but as with any new risk it has struggled with awareness,” explains Marek Stanislawski, Deputy Global Head of Cyber, AGCS.
“We have now reached a point where cyber is equally concerning for companies as their major traditional exposures.”
Cyber crime now costs an estimated $600bn a year up from $445bn in 2014.
This compares with a 10-year average economic loss from natural catastrophes of $208bn – three times as much.
While criminals use more innovative methods to steal data, commit fraud or extort money, there is also a growing cyber threat from nation states and affiliated hacker groups targeting critical infrastructure providers or stealing valuable data or trade secrets from companies.
Cyber incidents are increasingly likely to spark litigation, including securities and consumer class actions.
Data breaches or IT outages can generate large third party liabilities as affected customers or shareholders seek to recoup losses from companies.
