12 February 2020

Protect against these business risks in 2020

What are the most important risks identified by the global business community for 2020? We look at what they are, what they mean, how they rank and which risks are of most concern to Australian businesses.

The results are based on the findings of the 2020 Allianz Global Risk Barometer which canvassed 2718 respondents from the business and insurance sectors in 102 countries and territories. 

The top 5 global risks are

  1. cyber incidents
  2. business interruption
  3. changes in legislation
  4. natural catastrophes
  5. market developments.

In Australia there was some overlap but different priorities for our top 3 risks

  1. changes in legislation
  2. cyber incidents
  3. climate change.

And, due to recent events, we would suggest that pandemics be added into these areas of concern.

 

world-globe-risks

 

Cyber incidents

Cyber incidents are increasing in occurrence and becoming more costly, both in losses and penalties, pushing it into the global number one position for the first time.

Incidents can take the form of cyber crime, IT failures or outages, data breaches and resultant fines and penalties, as well as politically motivated disruptions. Businesses are facing larger and costlier data breaches, an increased number of ransomware incidents and a higher likelihood of penalties or litigation after a breach has occurred, while attacks are more and more sophisticated and involve larger amounts of money – sometimes in the multi-millions. Cyber breaches in Australian businesses increased by almost 80% in 2018.

As companies rely on greater volumes of personal data more individuals are affected, making lawsuits and damages awarded ever more expensive. Breaches can occur through targeted attacks, an inherited vulnerability as part of an acquisition, or business email compromise (spoofing) involving business employees. Some denial of service ransomware serves as a cover to introduce malware for obtaining valuable data, while responding to a phishing email by clicking on a link can release a data seeking Trojan into your system.

Business interruption

Historically viewed as a key threat but slightly less so in 2019, business interruption can occur as the result of fires or natural catastrophes, as well as other factors such as political disruptions like the social unrest in Hong Kong, loss of data and digital supply chains on shared platforms: cloud systems, for example.

Contingent business interruption refers to situations where a business is affected by events impacting suppliers or customers. The effect can flow on to multiple businesses in multiple companies, and this risk is particularly relevant to large manufacturing companies that import components from overseas suppliers.

Environmental events like extreme weather also affect the availability of natural resources. The recent bushfires burned about 1100 hectares of vines in the Adelaide Hills, and growers have been forced to dump entire vintages due to smoke taint, while in other parts of the country dairy farmers had to pour thousands of litres of milk away with access by tankers blocked by fire damage.

Changes in legislation

With about 1300 new trade barriers implemented in the 2019, businesses face major challenges in terms of trade wars, tariffs, economic sanctions and protectionism, as well as yet to be seen fallout from Brexit. While the US and China engaged in multi-billion dollar trade battle, Europe has adopted a freer trade model, forging influential agreements in Asia and South America.

Although protectionism and competition for access to resources characterise most of the recent changes in trade regulations, the carbon reduction movement is prompting many companies and investors to seek ethical and sustainability credentials in business partners.


Natural catastrophes

Top of mind in Australia with this summer’s record-breaking bushfires, on a global scale economic losses from natural catastrophes actually declined in 2019, according to Swiss Re, however numerous events caused widespread devastation.

Extreme weather resulting from climate change will continue to accompany the increase in temperatures across the world. The expectation is that there will be further fires, cyclones, torrential rain and flooding. In addition to property damage these events also affect infrastructure services such as power and transport, disrupting regular supply chains and the availability of materials. Some resources may become more costly or impossible to find.

Market developments

Volatility is the keyword for 2020. Along with income inequality and debt, political unrest, reduced investment and trade conflicts stand to impact relationships and supply chains. The movement of global markets could turn on unpredictable factors, with falling values, prompting the International Monetary Fund to warn that current conditions could tip into a major economic depression.

Increased restrictions and failing alliances, in combination with socio-political influences, are contributing to potentially unstable conditions, with fragmentation resulting in volatile commodity prices, currencies and capital flows, counterbalancing potential opportunities in emerging markets.

Pandemics

Pandemics are cyclical in occurrence and usually take new and unexpected forms, resulting in a lag between their outbreak and effective containment and treatment, if possible. Pandemic risk is particularly high in the modern world due to the prevalence and ease of travel which enables diseases to spread rapidly geographically.

In a worst case scenario the spread of a serious infectious disease could result in 700,000 deaths and annual economic losses of more than $500,000 billion, according to research cited by the World Health Organization. Some countries may close their ports and borders. On a local level pandemics can upset business operations by disrupting supply chains and access to resources, and more directly by absenteeism as authorities and schools quarantine suspected cases of illness.

Responsiveness

Forewarned is forearmed. Understanding what issues these risk trends present for your enterprise can inform your business strategy, planning and the mechanisms you can put in place before they impact your business.

 

Connect with an expert

 


Further reading

Cyber breaches reach new high

Framework for navigating political risks in business

Business interruption insurance


To the extent that any material in this document may be considered advice, it does not take into account your objectives, needs or financial situation. You should consider whether the advice is appropriate for you and review any relevant Product Disclosure Statement and policy wording before taking out an insurance policy.