Allianz Risk Barometer 2022: Business interruption tops Kenya business risks

Cyber incidents ranks as a top three peril in most countries surveyed including South Africa, Nigeria and Africa and Middle East. It retains the fifth position in Kenya. The main driver is the recent surge in ransomware attacks, which are confirmed as the top cyber threat for the year ahead by survey respondents (57%). Recent attacks have shown worrying trends such as ‘double extortion’ tactics combining the encryption of systems with data breaches; exploiting software vulnerabilities which potentially affect thousands of companies (for example, Log4J, Kaseya) or targeting physical critical infrastructure (the Colonial pipeline in the US). Cyber security also ranks as companies’ major environmental, social and governance (ESG) concern with respondents acknowledging the need to build resilience and plan for future outages or face the growing consequences from regulators, investors, and other stakeholders.

“Ransomware has become a big business for cyber criminals, who are refining their tactics, lowering the barriers to entry for as little as a $40 subscription and little technological knowledge. The commercialization of cyber crime makes it easier to exploit vulnerabilities on a massive scale. We will see more attacks against technology supply chains and critical infrastructure,” explains Scott Sayce, Global Head of Cyber at AGCS.

Business interruption (BI) ranks as the most concerning risk in Kenya, Ghana, Morocco and Namibia. It is ranked second in Africa and Middle East, South Africa, Madagascar and globally. In a year marked by widespread disruption, the extent of vulnerabilities in modern supply chains and production networks is more obvious than ever. According to the survey, the most feared cause of BI is cyber incidents, reflecting the rise in ransomware attacks but also the impact of companies’ growing reliance on digitalization and the shift to remote working. Natural catastrophes and pandemic are the two other important triggers for BI in the view of respondents.

In the past year post-lockdown surges in demand have combined with disruption to production and logistics, as Covid-19 outbreaks in Asia closed factories and caused record congestion levels in container shipping ports. Pandemic-related delays compounded other supply chain issues, such as the Suez Canal blockage or the global shortage of semiconductors after plant closures in Taiwan, Japan and Texas from weather events and fires.

“The pandemic has exposed the extent of interconnectivity in modern supply chains and how multiple unrelated events can come together to create widespread disruption. For the first time the resilience of supply chains has been tested to breaking point on a global scale,” says Philip Beblo, Property Industry Lead, Technology, Media, and Telecoms, at AGCS.

According to the recent Euler Hermes Global Trade Report, the Covid-19 pandemic will likely drive high levels of supply chain disruption into the second half of 2022, although mismatches in global demand and supply and container shipping capacity are eventually predicted to ease, assuming no further unexpected developments.

Awareness of BI risks is becoming an important strategic issue across entire companies. “There is a growing willingness among top management to bring more transparency to supply chains with organizations investing in tools and working with data to better understand the risks and create inventories, redundancies and contingency plans for business continuity,” says Maarten van der Zwaag, Global Head of Property Risk Consulting at AGCS.

Pandemic outbreak remains a major concern for companies but drops from first to third in Kenya and from second to fourth position globally (although the survey predated the emergence of the Omicron variant). While the Covid-19 crisis continues to overshadow the economic outlook in many industries, encouragingly, businesses do feel they have adapted well. Most respondents (80%) think they are adequately or well-prepared for a future incident. Improving business continuity management is the main action companies are taking to make them more resilient.

The rise of Natural catastrophes and Climate change to third and sixth position respectively is telling, with both upwards trends closely related. Recent years have shown the frequency and severity of weather events are increasing due to global warming. For 2021, global insured catastrophe losses were well more than $100bn – the fourth highest year on record. Hurricane Ida in the US may have been the costliest event, but more than half of the losses came from so-called secondary perils such as floods, heavy rain, thunderstorms, tornados and even winter freezes, which can often be local but increasingly costly events. Examples included Winter Storm Uri in Texas, the low-pressure weather system Bernd, which triggered catastrophic flooding in Germany and Benelux countries, the heavy flooding in Zhengzhou, China, and heatwaves and bushfires in Canada and California.

Allianz Risk Barometer respondents are most concerned about climate-change related weather events causing damage to corporate property (57%), followed by BI and supply chain impact (41%). However, they are also worried about managing the transition of their businesses to a low-carbon economy (36%), fulfilling complex regulation, and reporting requirements and avoiding potential litigation risks for not adequately taking action to address climate change (34%).

“The pressure on businesses to act on climate change has increased noticeably over the past year, with a growing focus on net-zero contributions,” observes Line Hestvik, Chief Sustainability Officer at Allianz SE. “There is a clear trend for companies towards reducing greenhouse gas emissions in operations or exploring business opportunities for climate-friendly technologies and sustainable products. In the coming years, many corporate decision-makers will be looking even more closely at the impact of climate risks in their value chain and taking appropriate precautions. Many companies are building up dedicated competencies around climate risk mitigation, bringing together both risk management and sustainability experts.”

Businesses also must become more weatherproof against extreme events such as hurricanes or flooding. “Previous once-in-a-century-events may well occur more frequently in future and in regions which were considered ‘safe’ in the past. Both buildings and business continuity planning need to become more robust in response,” says van der Zwaag.

Other risers and fallers in this year’s Allianz Risk Barometer:

- Shortage of skilled workforce (13%) is a new entry in the top 10 risks at number nine. Attracting and retaining workers has rarely been more challenging. Respondents rank this as a top five risk in the engineering, construction, real estate, public service and healthcare sectors, and as the top risk for transportation.

- Changes in legislation and regulation remains fifth (19%) globally but moves up five places to fourth in Kenya. Prominent regulatory initiatives on companies’ radars in 2022 include anti-competitive practices targeting big tech, as well as sustainability initiatives with the EU taxonomy scheme.

- Fire and explosion (17%) is a perennial risk for companies, ranking seventh as in last year’s survey globally. Market developments (15%) falls from fourth to eighth globally and from second to sixth in Kenya year-on-year. Macroeconomic developments (11%) falls from eighth to 10th globally and from fifth to seventh in Kenya.

Allianz Global Corporate & Specialty (AGCS) is a leading global corporate insurance carrier and a key business unit of Allianz Group. We provide risk consultancy, Property-Casualty insurance solutions and alternative risk transfer for a wide spectrum of commercial, corporate and specialty risks across 10 dedicated lines of business.

Our customers are as diverse as business can be, ranging from Fortune Global 500 companies to small businesses. Among them are not only the world’s largest consumer brands, tech companies and the global aviation and shipping industry, but also satellite operators or Hollywood film productions. They all look to AGCS for smart answers to their largest and most complex risks in a dynamic, multinational business environment and trust us to deliver an outstanding claims experience.

Worldwide, AGCS operates with its own teams in 31 countries and through the Allianz Group network and partners in over 200 countries and territories, employing around 4,400 people. As one of the largest Property-Casualty units of Allianz Group, we are backed by strong and stable financial ratings. In 2020, AGCS generated a total of €9.3 billion gross premium globally.

For more information please visit http://www.agcs.allianz.com/ or follow us on Twitter @AGCS_Insurance and LinkedIn.

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Deviations may arise due to changes in factors including, but not limited to, the following: (i) the general economic and competitive situation in the Allianz’s core business and core markets, (ii) the performance of financial markets (in particular market volatility, liquidity, and credit events), (iii) adverse publicity, regulatory actions or litigation with respect to the Allianz Group, other well-known companies and the financial services industry generally, (iv) the frequency and severity of insured loss events, including those resulting from natural catastrophes, and the development of loss expenses, (v) mortality and morbidity levels and trends, (vi) persistency levels, (vii) the extent of credit defaults, (viii) interest rate levels, (ix) currency exchange rates, most notably the EUR/USD exchange rate, (x) changes in laws and regulations, including tax regulations, (xi) the impact of acquisitions including and related integration issues and reorganization measures, and (xii) the general competitive conditions that, in each individual case, apply at a local, regional, national, and/or global level. Many of these changes can be exacerbated by terrorist activities.

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