In this report, JOSEPH INOKOTONG highlights potential regulatory, cyber, economic, risks, among others that the insurance industry may encounter as enunciated by the Allianz Risk Barometer.
THE Allianz Risk Barometer, in its recently published works, enumerated that cyber incidents such as ransomware attacks, data breaches and IT disruptions are the biggest worry for not only the insurance industry,but also other companies globally in 2024.
The insurance business is all about absorbing and minimising risks, and based on the insights of more than 3,000 risk management professionals, the closely interlinked peril to business interruption ranks second – natural catastrophes, up from number six to number three year-on-year. Fire and explosions are reported to be up from number nine to number six; while political risks and violence that are up from number 10 to number eight are the biggest risers in the latest compilation of the top global business risks.
The report highlights that in Nigeria, the increasing worries surrounding changes in legislation and regulation, cyber incidents and macroeconomic developments, emerged as joint top risks with 36 percent of responses. Changes in legislation and regulation inched up from the fourth position in 2023 to become one of the most pressing concerns to reflect in the evolving regulatory landscape and the need for companies to adapt to new policies and compliance requirements.
Managing Director/Chief Executive Officer of Allianz Nigeria, Yomi Onifade, while speaking on this, disclosed that, “The changing regulatory environment poses significant challenges for businesses in Nigeria. It is crucial for companies to stay updated and ensure compliance to mitigate potential risks.”
Cyber incidents have also risen in prominence, moving up from the third spot in 2023 with businesses recognising the urgent need to enhance their cyber security measures in a bid to protect sensitive data and maintain operational continuity. Onifade enthused, “With the increasing reliance on digital platforms, businesses must prioritise cyber security to safeguard their operations and customer information. Failure to do so can have severe consequences.”
Macroeconomic developments have maintained their position as a top risk, he noted, indicating the ongoing challenges faced by businesses in navigating economic uncertainties and volatility. He added that “The Nigerian business landscape is constantly evolving, and companies must be prepared to adapt to changing economic conditions. A robust risk management strategy is essential to mitigate the impact of macroeconomic challenges.”
On what brokers and customers of insurance companies should do, Petros Papanikolaou, Allianz Commercial CEO, while commenting on the findings, said, “The top risks and major risers in this year’s Allianz Risk Barometer reflect the big issues facing companies around the world right now – digitalisation, climate change, and an uncertain geopolitical environment. Many of these risks are already hitting home, with extreme weather, ransomware attacks, and regional conflicts expected to test the resilience of supply chains and business models further in 2024. Brokers and customers of insurance companies should be aware and adjust their insurance covers accordingly.”
The report notes that large corporates, mid-size, and smaller businesses are united by the same risk concerns – they are all mostly worried about cyber, business interruption and natural catastrophes. However, the resilience gap between large and smaller companies is widening, as risk awareness among larger organisations has grown since the pandemic with a notable drive to upgrade resilience. Conversely, smaller businesses often lack the time and resources to identify and effectively prepare for a wider range of risk scenarios and, as a result, take longer to get the business back up and running after an unexpected incident.
The trends driving cyber activity in 2024, according to the report, cyber incidents had 36 percent of overall responses rank as the most important risk globally for the third year in a row – for the first time by a clear margin of five percentage points. It is the top peril in 17 countries, including Nigeria, Uganda, Kenya, Mauritius, Australia, France, Germany, India, Japan, the UK, and the USA. A data breach is seen as the most concerning cyber threat for Allianz Risk Barometer respondents, representing 59 percent followed by attacks on critical infrastructure and physical assets by 53 percent.
The recent increase in ransomware attacks in 2023 saw a worrying resurgence in activity, with insurance claims activity up by more than 50 percent compared with 2022, which ranks third, 53 percent.
Scott Sayce, Global Head of Cyber, Allianz Commercial, explained thus, “Cyber criminals are exploring ways to use new technologies such as generative artificial intelligence (AI) to automate and accelerate attacks, creating more effective malware and phishing. The growing number of incidents caused by poor cyber security, in mobile devices in particular, a shortage of millions of cyber security professionals, and the threat facing smaller companies because they relied on IT outsourcing are also expected to drive cyber activity in 2024“.
Business interruption and natural catastrophes: Despite an easing of post-pandemic supply chain disruption in 2023, business interruption, which hits 31 percent, retains its position as the second biggest threat in the 2024 survey.
In Nigeria, business interruption moved down from number nine to number 10. It ranks in the top five risks in Africa and the Middle East, Ghana, Kenya, Senegal, South Africa and Uganda. This result reflects the interconnectedness in an increasingly volatile global business environment, as well as a strong reliance on supply chains for critical products or services. Improving business continuity management, identifying supply chain bottlenecks, and developing alternative suppliers continue to be key risk management priorities for companies in 2024.
Natural catastrophes with 26 percent is one of the biggest movers at number three, up three positions. The year 2023 was a record-breaking year on several fronts. It was the hottest year since records began, while insured losses exceeded $100 billion for the fourth consecutive year, driven by the highest-ever damage bill of $60 billion from severe thunderstorms.
In Africa and the Middle East, natural catastrophes have emerged as a new risk, ranking at number six. Notably, Morocco witnessed a significant rise in this risk, climbing from seventh to first place. Cameroon and South Africa also experienced a surge in natural catastrophe risks, ranking among the top five risks in these countries.
Regional differences and risk risers and fallers: Climate change with 18 percent may be a non-mover year-on-year at number seven but is among the top three business risks in countries such as Brazil, Greece, Italy, Turkey, and Mexico. Climate change dropped from fourth to 10th place in Africa and the Middle East compared to the previous year. However, it remains a top-five concern in countries such as Nigeria, Ghana, Mauritius and Morocco. Physical damage to corporate assets from more frequent and severe extreme weather events is a key threat. The utility, energy, and industrial sectors are among the most exposed. In addition, net zero transition risks and liability risks are expected to increase in the future as companies invest in new, largely untested low-carbon technologies to transform their business models, the report finds.
It states that given ongoing conflicts in the Middle East and Ukraine, and tensions between China and the US, political risks and violence at 14 percent is up to number eight from number 10. The risk moved down to number seven in Nigeria from number two in 2023. This risk has moved down one place to seventh in Africa and the Middle East while ranking as one of the top five risks in Cameroon and Ivory Coast.
According to the report, 2024 is also a super-election year, where as much as 50 percent of the world’s population could go to the polls, including in Ghana, Mauritius, Senegal, South Africa, India, Russia, the US, and the UK. Dissatisfaction with the potential outcomes, coupled with general economic uncertainty, the high cost of living, and growing disinformation fueled by social media means societal polarisation is expected to increase, triggering more social unrest in many countries.
The Allianz Research noted that however, there is some hope among Allianz Risk Barometer respondents that 2024 could see the wild economic ups and downs experienced since the Covid-19 shock settled down, resulting in macroeconomic developments of 19 percent, falling to number five from number three and retaining number three position in Nigeria, moving down from number one position to number three in Africa and the Middle East. It ranks as the number one risk in Cameroon, Ghana, Mauritius and Nigeria. Yet economic growth outlooks remain subdued – just over two percent globally in 2024.
Chief Economist at Allianz, Ludovic Subran, said, “But this lackluster growth is a necessary evil: high inflation rates will finally be a thing of the past. This will give central banks some room to maneuver – lower interest rates are likely in the second half of the year. Not a second too late, as stimulus cannot be expected from fiscal policy. A caveat is the considerable number of elections in 2024 and the risk of further upheavals depending on certain outcomes.”
In a global context, the shortage of skilled workforce at 12 percent is seen as a lower risk than in 2023, dropping from number eight positions to number 10. However, businesses in Central and Eastern Europe, the UK, and Australia identify it as a top five-business risk. Given there is still record-low unemployment in many countries around the globe, companies are looking to fill more jobs than there are people available to fill them. IT or data experts are seen as the most challenging to find, making this issue a critical aspect in the fight against cybercrime.
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