Reputation and loss of brand value remain top concerns of large UK companies according to the Allianz Risk Barometer 2013. The concern relates to the rise in popularity of social media, with phenomena such as viral messaging and re-tweeting allowing negative comments to spread globally, regardless of merit, within very short time frames. However, priorities change with mid size enterprises which are more concerned about the availability of credit, with loss of brand value less of an issue.
One particular concern unites companies around the world: their operations come to a standstill due to force majeure. Business and supply chain interruption, natural disasters and fire and explosion are the key risks faced by companies globally, with regulatory or market-related changes also highlighted in the report.
In the UK concern about reputation ranked more highly than other territories in the survey as globally, damage to reputation ranked in 10th place. In 2012 the strength of concern about reputation in the UK prompted development of the Reputation Protect policy by Allianz Global Corporate & Specialty (AGCS), the Allianz Group’s center for corporate and industrial insurance.
The top ten concerns of businesses globally rank as follows:
– Business interruption, supply chain risk
– Natural catastrophes such as storm, flood, earthquake
– Fire, explosion
– Changes in legislation
– Intensified competition
– Quality deficiencies, serial defects
– Market fluctuations e.g. exchange or interest rates
– Market stagnation or decline
– Eurozone breakdown
– Loss of reputation or brand value
The Allianz Risk Barometer 2013 survey, conducted by AGCS, gathered opinions from 529 corporate and industrial insurance experts from across the Allianz Group on the most important risks that companies, in particular regions and sectors, face in 2013.
Companies are poorly prepared for IT failures and power outages
According to the research, while many businesses are ensuring they are fully protected against the risks they class as serious they are simultaneously underestimating others. For example, IT failures – whether self-inflicted by human error or due to cyber crime – can entail high economic losses in an increasingly digitized economy. Nonetheless, just six percent of Allianz experts think that their clients are really aware of this risk. Similarly, the risk of supra-regional power blackouts features on few companies’ risk radar. “Reliability of power supply will decrease in the future due to aging infrastructure and the lack of substantial investments,” explains Michael Bruch, Head of R&D Risk Consulting. If a blackout occurs, the impacts are much higher today than 10 to 15 years ago due to the high dependence on information and communication technologies and the lack of preparedness on the part of businesses.
Clement B. Booth, Member of the Board of Management of Allianz SE commented: “Allianz has been a reliable partner to businesses all over the world for many years. We have in-depth knowledge about the risks that businesses face and we also know which issues they may be underestimating.”
Axel Theis, CEO of AGCS added: “Today’s global companies operate in a complex risk landscape that features traditional risks such as fire as well as ultra-modern risks like supply chain interruptions and cyber crime.”
Losses caused by natural disasters on the rise
In many cases, business interruption is caused by natural disasters, the second-largest business risk (44 percent of responses). Although 2012 was a relatively moderate year for natural catastrophes – with the exception of Hurricane Sandy – this is no reason to sound the all-clear: “Insurance claims caused by natural disasters have risen 15-fold over the past 30 years. And they will continue to grow because of the increase in insured assets in Asia, in particular, and the ongoing shift towards development in high-risk coastal regions,” explains Markus Stowasser, meteorologist at Allianz Re. Europe, too, can expect more frequent local weather extremes such as heavy rainfall.
One “age-old risk” features surprisingly prominently on corporate agendas: fire and explosion was named as the third-most important global business risk. Fires are relatively rare, but can cause high property and business interruption claims especially in manufacturing industries. AGCS’s loss statistics speak for themselves: Of seven large industrial property losses exceeding 10 million euros each in 2012, six were caused by fire. “Companies shouldn’t compromise on high fire protection standards due to economic pressure,” stresses Paul Carter, Global Head of Risk Consulting at AGCS.