As companies embrace digitalization and increasingly interlink their equipment, processes and supply chain – the so-called ‘Internet of Things’ – the risk of financial losses rises exponentially, making cyber security and related issues fast emerging as the biggest risk for organizations, according to Allianz Global Corporate & Specialty SE.
The 6th annual Allianz Risk Barometer notes that the cyber threat now goes far beyond hacking and privacy, and data breaches and new data protection regulations will exacerbate the fallout from these for businesses. Time is running out for businesses to prepare for the implementation of the new General Data Protection Regulation across Europe in 2018. The cost of compliance will be high, and so could be related penalties.
In addition, inter-connectivity and increasing sophistication of cyber attacks pose risk for companies not only directly, but also indirectly through exposed critical infrastructure such as IT, water or power supply. Then there is the threat posed by technical failure or human error, which could lead to prolonged and wider business interruption. In today’s ‘Industry 4.0’ environment, failure to submit or interpret data correctly could stop production.
Worldwide, cyber concerns ranked third in the list of top risks, but second in Europe and the United States. Especially worried were respondents in the trade and information and communication technology industries. The report shows that smaller organizations may be underestimating their cyber risk, as those with revenue of less than €250 million rank cyber incidents as the sixth biggest risk. However, the impact of a serious incident could be much more damaging for such firms.
Business interruption remained the top fear globally for the fifth straight year, with multiple new triggers emerging, including non-physical damage disruptions caused by political violence, strikes and terror attacks.
Organizations are also facing potential financial losses as the changing political landscape - Brexit, US elections outcome and the upcoming polls in the EU, among others - raises fears of increasing protectionism and anti-globalization trends. Since 2014, there have been around 600 to 700 new trade barriers introduced globally every year.
“Companies worldwide are bracing for a year of uncertainty,” says Chris Fischer Hirs, the CEO of AGCS. “Unpredictable changes in the legal, geopolitical and market environment around the world are constant items on the agenda of risk managers and the top management. A range of new risks are emerging beyond the perennial perils of fire and natural catastrophes which require re-thinking of current monitoring and risk management tools.”