'Changes in legislation and regulation' the leading risk for Australian businesses in 2019: report
8th annual Allianz Risk Barometer survey on top business risks sees record participation of 2,415 insurance and risk experts from 86 countries, including Australia
'Changes in legislation and regulation' rises to top business risk in Australia – pushing last year's top risk – 'Cyber incidents' – to third place behind 'Business interruption'
Globally, business interruption scenarios are becoming more diverse and complex with costs rising – cyber incidents is the most feared trigger outplacing fire and natural catastrophes
AUSTRALIA (15 January 2019) – 'Changes in legislation and regulation' will be the top business risk in Australia this year with companies concerned about increasing and more onerous regulation, according to the eighth annual Allianz Risk Barometer. Published by Allianz Global Corporate & Specialty (AGCS), the 2019 report is based on the insights of 2,415 risk experts across 86 countries, including Australia.
In Australia, 'changes in legislation and regulation' tops the risk list for the first time with 36% of respondents rating it as the number one risk in 2019 up from third spot last year (with 28%). Remaining in second place is 'business interruption' (BI) (32% of responses), followed by 'cyber incidents' (30% of responses), which has moved down from its number one spot in 2018.
While the risk of cyber incidents has moved down in the rankings this year, it is still a major concern for Australian businesses with 61% of Australian respondents citing cyber incidents as the cause of business interruption they fear the most.
Furthermore, sentiment around the impact of 'new technologies', which ranks as the fifth highest business risk in Australia for 2019, is seen as a double-edged sword. When asked which new technologies are the most useful or valuable for a company, the top answer by Australian respondents (80%) was Artificial Intelligence. Yet when asked which new technologies pose the greatest risk on a business, Australians again answered with Artificial Intelligence (66%).
"The increased pace of change, both in terms of legislation, regulation, market disruption and new technologies, is heavily influencing business risk concerns within the Australian market," said Willem Van Wyk, CEO of Allianz Global Corporate & Specialty Pacific.
"Australian organisations need to plan and prepare for a wide range of disruptive scenarios that can stem from their own operations, suppliers, IT service providers or new competitors."
"Regardless of the cause of disruption, the financial loss for companies following an event can be enormous. New risk management solutions, analytical tools and innovative partnerships can help to better understand and mitigate the myriad of risks facing business and prevent losses before they occur."
Global Results
BI threats continue to evolve
Business Interruption remains the top threat for businesses worldwide for the seventh year running and is the top risk reported in countries such as the US, Canada, Germany, Spain, Italy and China[1]. 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, political rioting or environmental pollution. Both cyber and business interruption risks are increasingly interlinked as ransomware attacks or accidental IT outages, often resulting in a disruption of operations and services costing hundreds of millions of dollars. In alignment to the Australian findings, cyber incidents rank as the BI trigger most feared by businesses globally (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 – both globally (69%) and in Australia (65%).
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."
Cybercrime now costs an estimated $600bn a year, up from $445bn in 2014[2]. This compares with a 10-year average economic loss from natural catastrophes of $208bn[3] - 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.
Risk risers and fallers
Natural catastrophes again ranked third (28% of responses) in this year's top 10 ranking of global business risks with 2018 being a more benign version of 2017 with its peak catastrophe losses, although economic losses still totaled close to $150bn3. In comparison to Australia's top business risk ranking, changes in legislation and regulation was ranked #4 globally (27% of responses), fuelled by uncertainty over Brexit and corporate concern around global trade wars and tariffs.
Climate Change, ranked #8 both globally and in Australia, and shortage of skilled workforce (#10 globally, #9 in Australia) are the biggest climbers globally in this year's survey. Climate change could not only be a harbinger of increasing losses and disruption from extreme weather events and natural catastrophes, but is also likely to have big implications for regulation and liability considering rigid emission targets or new reporting and disclosure requirements in many sectors.
Shortage of skilled workforce appears for the first time among the top business risks globally as well as for many countries in Central and Eastern Europe, the UK, US, Canada and Australia (#9). It is driven by factors such as changing demographics, Brexit uncertainty and a shallow pool of talent in the digital economy.
"Skilled workforce — and human capital more generally — has become the scarce resource of the digital economy," says Ludovic Subran, Deputy Chief Economist of Allianz. "Competition is fierce between companies to get new recruits with competencies in artificial intelligence, data science, or 'frontier risk management' such as managing cyber or reputational risk as most of these jobs did not exist 10 years ago. Even attractive salaries do not suffice as the pool of recruits with the needed skillset is limited and the urgency to onboard them does not allow for on-the-job training."
