"Allianz Risk Barometer 2022" Results Highlight the Convergence of Risks

Cyber incidents are the top-ranked risk in the Allianz Risk Barometer 2022, followed by business interruption, natural catastrophes, pandemic outbreak, and changes in legislation and regulation.

Rounding out the top 10 in this year's Risk Barometer (January 18, 2022, Allianz Global Corporate & Specialty) are climate change, fire and explosion, market developments, shortage of a skilled workforce, and macroeconomic developments.

This year's report is the 11th Allianz Risk Barometer. It's based on the views of 2,650 respondents from 89 countries and territories. The insurer's annual corporate risk survey included Allianz customers, brokers, and trade industry organizations, as well as risk consultants, underwriters, senior managers, and claims experts in the corporate insurance segment at Allianz. The survey was conducted in October and November 2021.

Allianz notes that this year's report follows a year of unprecedented cyber attacks, business interruption and supply chain disruptions, and natural catastrophe activity. Meanwhile, the survey suggests that awareness of the risks of climate change continue to grow, with the peril moving to its highest spot ever in the annual Allianz survey at number six.

The report also cites the impact of the convergence of several of the top risks on businesses.

"The ripple effects of the pandemic and surges in COVID-19 infections have combined with crippling cyber attacks and extreme weather events to test business resilience and push supply chains to [a] breaking point," the report says.

Cyber incidents jumped to the top spot in this year's survey from number three in 2021, replacing last year's top risk, business interruption, which slipped to the second spot.

"COVID-19 continues to cast its shadow, but it is a digital pandemic—cyber risk—returning to the top of the rankings (it last held this spot in 2020) that is one of the standout findings of the Allianz Risk Barometer," the report says. "Ransomware and other disruptive forms of cyber attacks continue to bedevil businesses, while potential risks from digitalization and the shift to remote working are driving growing concern."

The report notes that the 2022 rankings mark only the third time in the Allianz Risk Barometer history that business interruption (BI) hasn't been the top-ranked risk.

Despite BI risk dropping a spot, the report notes as follows: "The past 18 months have been a wake-up call for BI, and risks are likely to remain elevated for the foreseeable future. The pandemic has exposed the fragility and complexity of modern supply chains and how multiple events can come together to cause problems, raising awareness of the need for greater resilience and transparency—45 percent of respondents said recent supply chain disruption had had a large impact on their sector."

While supply chain disruptions should ease in the second half of 2022, vulnerabilities exposed by events like the Suez Canal blockage and the global semiconductor shortage could take companies years to fix, the Allianz report says. Meanwhile, a growing reliance on technology and digitalization creates the largest business interruption challenge for businesses going forward.

"Alongside supply chain disruption, these were cited as the biggest changes brought about by the pandemic, while cyber is the most feared cause of BI in this year's survey," the Allianz report says. "Respondents note that cyber is still not as well understood as traditional BI triggers such as natural catastrophes or fire, therefore mitigations are not as well developed."

In addition, the report says that cyber security also ranks as companies' top environmental, social, and governance (ESG) concern. Companies recognize that a failure to build resilience and plan for future outages will leave them exposed to consequences from regulators, investors, and other stakeholders, Allianz says.

The Allianz report also highlights the rise of natural catastrophes to the third spot in the risk ranking and climate change to sixth, as the frequency and severity of extreme weather events have increased in recent years.

"Respondents are concerned about the physical loss and supply chain impact from climate change-related weather events," the Allianz report says. "However, they are also worried about managing the transition to a low-carbon economy and increasing regulation, reporting requirements, and litigation." The report notes that "lack of actions taken to address climate change" was respondents' second-highest ESG concern behind cyber.

While noting that the latest survey was conducted before the outbreak of the COVID-19 omicron variant, Allianz says that pandemic outbreak's drop to the fourth spot in this year's ranking from second in 2021 suggests that companies' COVID-19 worries appear to be easing.

Some 80 percent of businesses surveyed said they felt relatively well prepared to deal with a future pandemic, Allianz says. Still, omicron is a reminder of the unpredictability of the COVID-19 threat, with potential long-term and far-reaching consequences, the insurer says. "This is reflected in the rankings of BI and cyber but also by the entry of shortage of skilled workforce into the top 10 risks at number 9, with staff absences and shortages expected to disrupt business again in 2022," the report says.

The Allianz report says that the past year's disruptions have raised the awareness of BI risks beyond risk management departments, making it an important issue across companies and prompting reviews of exposures, business resilience, and supply chains.

"There is a growing desire and willingness among top management to bring greater transparency to supply chains with organizations investing in tools and systems and working with data to better understand the risks," the Allianz report says. "Increasingly, businesses and insurers see the need to build resilience against the major causes of BI as a competitive advantage."

Businesses must build resilience not only to threats such as cyber risks but also extreme weather events, the report says.

"Previous once-in-a-century events may well occur more frequently in [the] future," the Allianz report says. "At the same time, with secondary perils accounting for a growing number of losses, current modeling capabilities and risk mitigation strategies will need to be reassessed and improved."