Breaking Down Top Business Risks
Companies worldwide are bracing themselves for a year of increased uncertainty, driven by growing concerns over political, legal and regulatory developments around the globe. Digital dilemmas such as the impact of new technologies on the risk profile of industries and cyber incidents are a rising concern as well, while natural catastrophe activity remains high on the agenda. What troubles businesses most are actual or anticipated losses from a business interruption.
Business interruption is the top risk for the fifth year in succession, but new triggers continue to emerge. Perils such as natural catastrophes and fires are the causes businesses fear most, but the nature of the risk is shifting increasingly towards non-damage events. A cyber incident or the indirect impact of an act of terrorism or political violence are events that can result in large losses without causing physical damage. More of these types of events are expected to occur in future.
The rise of new technology and the shift from physical asset protection to intangible risks means the insurance model is also evolving. Today’s risk management world is more fluid and data-driven and intangible risks in particular require specialist services such as forensic IT support or crisis management. Demand is also expected to increase for new insurance coverages such as cyber and non-damage business interruption insurance, as companies look to protect against an increasing range of exposures.
The top business risks by industry are as follows:
ENGINEERING, CONSTRUCTION & REAL ESTATE
The impact of natural catastrophes (40%) is the new top risk for the sector, replacing market developments. In recent years the cost of engineering claims has been rising with the trend towards ever-higher values and risks that are increasingly interconnected and concentrated on areas with exposure to natural hazards. Earthquakes pose a particular threat. A five year analysis of large insurance claims (€1m+) showed earthquake to be the top cause of loss in the engineering sector, accounting for 65% of all claims according to value.
FINANCIAL SERVICES
Little change in the sector year-on-year with market developments continuing to maintain the top risk ranking. Cyber incidents remains the second top risk but events such as the hacking of the banking arm of supermarket chain Tesco in the UK2 , which led to money being stolen from thousands of accounts, has raised fresh concerns about the methods used to detect this risk. The Bank of England has said the threat of cyber-attacks is one of the major risks facing the industry.
MARINE AND SHIPPING
The global shipping industry has been weathering rough seas for years. According to Euler Hermes*, this situation is not likely to change soon given evidence in the container segment where insolvencies rose by more than 10% during the first half of 2016. Business interruption rises up the risk rankings in the wake of the fall-out of the collapse of Hanjin Shipping. Human error is a new entry in the top five risks. It is estimated that around 80%** of marine accidents can be attributed to this.
* Rough Seas For The Shipping Industry – Consolidation Wave Still Rolls, Euler Hermes
** Human Reliability and Error in Transportation Systems, Springer
