For the past several years, global insurer, Allianz has issued an annual business “risk barometer” consisting of survey results ranking business risks faced by midsize companies and larger industrial companies. This year’s results are available here. And according to the survey, the top 10 global business risks are:
The risks identified are hardly surprising, and some may question the validity of the survey of Allianz employees and consultants regarding risks facing their clients as an accurate predictor of business sentiment. Nevertheless, the barometer provides valuable insights for risk managers and specialty insurers – especially if one digs a little deeper into the data provided.
For example, cybercrime made it to the list for the first time this year, and that was before the recent data breaches reported by Target and others. The 2014 ranking of loss of reputation or brand value, which would seem to be related to concerns over cybercrime, jumped nearly 50% and was ranked as a top three risk by 21% of respondents for 2014 vs. 14% for 2013.
Risk managers that fail to take measures to identify, mitigate and/or efficiently transfer such risks, will have a hard time explaining their failures when the risk perception by their peers has been publicly acknowledged and documented. Specialty insurers, already enjoying strong growth for insurance products addressing these risks, should also take notice of these developments. Indeed, the survey results may imply a reverse in a trend observed by some. Click here for an article by IDG about the rise in data breaches and the resulting interest in cyberinsurance.
As is frequently the case, it will be important for insurers and risk managers to contemplate and converge on whether, and to what extent, these risks involve opportunities for efficient risk transfers vs. uninsurable core business risks. While insuring the value of an entity’s reputation from fortuitous (from the insured’s perspective) events presents a number of difficulties for insurers (e.g. valuation uncertainties, insurability of core business risks), the risk that a particular insured may suffer a defined event that warrants intervention by a crisis consultant to address reputational damage at the insurer’s expense may be eminently insurable.
For property and casualty insurers, the barometer may suggest that their core products (first party property insurance and CGL insurance) are becoming less relevant to their insured’s perception of business risks. While many property insurers offer generic business interruption coverage (replacing business income when the Insured’s property suffers an insured physical loss), sophisticated supply chain interruption insurance (contingent business interruption) is difficult to underwrite and price and is far less available, notwithstanding the increasing importance of this risk to insureds as noted here.
In addition, while changes to the standard CGL policy over time have diminished coverage for reputational and soft IP risks (trademark and copyright) available in connection with the Personal And Advertising Injury coverage available under the CGL Policy, the perception of the importance of such risks to insureds appears to have grown.