This year, the report surveyed a record 2,415 respondents from 86 countries, including Allianz customers, brokers, industry trade organizations, risk consultants, underwriters, senior managers, and claims experts, to reveal that business interruption and cyber incidents are tied for top place, a change from last year when business interruption came out on top by a small margin. These two risks are, however, not mutually exclusive.
“It is fair to say there is an increasing and trending upwards concern of cyber risk and cyber incidents to the businesses that we insure,” said Ulrich Kadow (pictured), CEO and chief agent of AGCS Canada. “I would also say that the leading cause for business interruption is cyber incidents, so they are to some extent interlinked, and we expect that to remain a concern for this year as well as for the foreseeable future.”
Fire and explosion, natural catastrophes, supplier failure, and machinery breakdown are connected to the business interruption risk as well.
“When you look at supplier failure, for example, businesses are becoming more and more interlinked, the supply chains are lean, businesses are sourcing their products and services from companies around the globe, and as a result of these networks getting more complicated and globalization being the trend in many instances, that becomes a bigger concern,” said Kadow, adding, that machinery breakdown, which mainly affects manufacturing businesses also has implications for BI. “As equipment becomes more sophisticated and complicated, it becomes more time-consuming and expensive to replace, and, as a result of that, a business interruption might be a fairly cost event for risk managers.”
In Canada, business interruption, cyber incidents, and climate change were the top three areas of concern for Risk Barometer respondents, though regulatory and legislative changes will also have an impact on the Canadian insurance market and its clientele in the coming year. Besides mandatory breach notification regulations, the legalization of cannabis has been a significant change from the past year.
“Canada is at the forefront of innovation globally in the legalization process. That, of course, has an impact on many industries, including insurance, and it’s basically a new market that is emerging,” said Kadow. “With the full supply chain of cannabis, from the growing to the manufacturing to the wholesale and the retail, all of these industries will have varying insurance demands and, as a result of that, that’s a new market space that the insurance industry is trying to wrap its head around.”
Markets around the world are meanwhile developing in unexpected directions that could bring challenges for Canadian businesses and their insurers. With the biggest trading partner of Canada being the United States, more protectionist policies are top of mind for many companies, as is the UK market, which is in flux as the Brexit deadline looms with no deal in sight, triggering uncertainty in the global marketplace.
Finally, mergers and acquisitions continue to steal the spotlight in the insurance industry – with the notable Marsh & McLennan and JLT deal announced in late 2018, and the AXA and XL Catlin deal taking centre stage earlier in the year – a trend that Kadow expects to develop into the future, with ramifications for both distribution channels and where clients ultimately place capacity.
As brokers take note of the top business risks likely to impact their commercial clients, one of the most important takeaways from the Risk Barometer is education and driving awareness about looming threats.
“Making risk managers aware of what the risks are and to what extent insurance can help them mitigate the risks, that continues to be of key importance,” said Kadow. “Take business interruption, for example. There are always some areas that may not have been considered, so what is my exposure on the supply chain as a result of a supplier 10,000 miles or 1,000 miles away not being able to supply the products, am I purchasing sufficient BI insurance or sufficient contingent BI insurance, which would be triggered if one of the suppliers – either direct or even second or third tier – happens to go out of business. [Risk managers need to] really understand what the risk developments are, make sure that the insurance program is adequate to cover all of these risks, that the limits are adequate, and that sufficient risk mitigation practices are in place to mitigate the loss, should it happen.”
