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THESE THREE EXPOSURES STANDOUT AS THE TOP GLOBAL BUSINESS RISKS IN ALLIANZ RISK
BAROMETER SURVEY

Annual Allianz Risk Barometer survey finds those three risks ahead of COVID and
supply chain disruptions; lack of skilled labor debuts on list.
By: Gregory DL Morris | January 29, 2022
Topics: Insurance Industry | Risk Management

Cyber perils, business interruption (BI) and natural disasters were ranked as
the top three business risks globally in 2022 by insureds and brokers
participating in the 11th annual Allianz Risk Barometer survey.

Pandemic risks dropped from second last year to fourth position as majority of
companies are less concerned and feel adequately prepared for future outbreaks.
Natural catastrophes and climate change rose significantly in the annual
rankings.

The threat of ransomware attacks, data breaches or major IT outages worries
companies even more than business and supply chain disruption, natural disasters
or the COVID-19 pandemic — all of which have heavily affected firms in the past
year.

THE REPORT AT A GLANCE

The annual survey from Allianz Global Corporate & Specialty (AGCS) incorporates
the views of 2,650 experts in 89 countries and territories, including CEOs, risk
managers, brokers and insurance experts.

Cyber incidents topped the Risk Barometer for only the second time in the
survey’s history, with 44% of responses. Business interruption dropped to a
close second at 42%, while natural catastrophes ranked a distant third at 25%.
That was, however, a meaningful jump from sixth in 2021.

“Cyber has been on the survey for three or four years,” said Thomas K. Varney,
regional manger for North America at Allianz Risk Consultants, part of AGCS.

“It appeared at number 5 or 6, then moved up quickly. In contrast, BI has been
in the top two or three since it debuted at number 2 on the first barometer. Nat
CAT has gone up and down. It dropped out with advent of the pandemic, and now is
back.”

SPOTLIGHT SHIFTS TO NAT CATS AND CYBER

Climate change climbed to its highest-ever ranking of sixth at 17%, up from
ninth last year, while pandemic outbreak dipped to fourth at 22%.

The rise of natural catastrophes and climate change to third and sixth position
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 in excess of $100
billion, the fourth highest year on record, according to AGCS.

Hurricane Ida in the U.S. 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 heat waves and bushfires in Canada
and California.

Adding some depth to that observation, Varney explained that respondents’ view
of Nat CAT has broadened. “It used to be that Nat CAT was shorthand for
hurricanes and tornadoes in some regions and seasons. But now Nat CAT includes
freezes and tornadoes in December.”

The latter reference was to a cluster of tornadoes that ripped across eight
states. The death toll made it one of the top 10 deadliest storm outbreaks on
record, and one storm’s track of 250 miles made it the longest in history.

“The other important realization,” Varney added, “is that the top-ranked risks
are all interconnected. They cannot be separated or isolated.”

“Our underwriters look at the barometer to help them understand the concerns of
our clients and of their brokers. My group looks at the barometer as a guide to
how we can support our underwriters,” he said.

As an example, Varney returned to cyber coverage. “When the barometer first came
out, cyber was note really recognized as a thing unto itself. Now it is
something that is addressed by experts in underwriting, claims, and loss
control.”

Cyber incidents ranked as a top-three peril in most countries surveyed. The main
driver is the recent surge in ransomware attacks, which are confirmed as the top
cyberthreat 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 that potentially affect thousands of companies, or targeting
physical critical infrastructure.

Cybersecurity 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.

SUPPLY CHAIN RISKS BECOME MORE OBVIOUS

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.

“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,” said Philip Beblo, property industry lead
for technology, media and telecommunication 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.

“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,” said Maarten van der Zwaag, global
head of property risk consulting at AGCS.

The pandemic itself remains a major concern for companies but dropped from
second to fourth position; although the survey predated the emergence of the
omicron variant.

While the COVID-19 crisis continues to overshadow the economic outlook in many
industries, the survey indicates that businesses do feel they have adapted well.

Four fifths of respondents 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. &

Gregory DL Morris is an independent business journalist currently based in New
York with 25 years’ experience in industry, energy, finance and transportation.
He can be reached at riskletters@theinstitutes.org.

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SPONSORED CONTENT BY NATIONWIDE

HOW TO TACKLE THE RISING TIDE OF RANSOMWARE ATTACKS

As cyber criminals become increasingly more sophisticated in their mode of
attack and ransom demands spiral, so businesses need to be more proactive in
preventing an attack and dealing with its aftermath.
By: Nationwide® | October 1, 2021

Ransomware is the single biggest risk facing businesses today.

Such attacks are becoming increasingly prevalent as the criminals develop
ever-more sophisticated methods and attack vectors. Increasing digital
interconnectivity, and the use of mobile devices and the Internet of Things have
provided the hackers with more touch points to attack. As companies grow further
and faster than before, so too are they leaving themselves more exposed to these
cyber threats, which are only increasing in severity and frequency.

The problem is exacerbated for larger firms with legacy systems and networks or
those undergoing mergers or acquisitions. Certain industries, such as
manufacturing and many in the public sector, are also less well prepared for
these new types of attacks.

Driving this rising tide of ransomware attacks are nation-state sponsored
hackers from countries such as Russia and Ukraine, who have only one aim: to
causing maximum disruption. Such is their growth that they have now become an
industry in their own right, with the criminals hiring out their services or
acting as a broker to return for a cut of the profits.

The costs go far beyond the initial loss too: they extend to business
interruption, forensics, recovery and restoration costs from the event. Added to
that, ransom demands are increasing as the hackers target higher value
organizations.

“Gone are the days of limited seven-figure ransom demands,” said Tim Nunziata,
Associate Vice President and Head of Cyber Risk at Nationwide. “Now we’re seeing
multi-million dollar demands regularly.”

The effects of such attacks on businesses can be ruinous, not just operationally
and financially, but also reputationally — something many small and mid-sized
firms don’t have the wherewithal to deal with. In worst-case scenarios, they can
be forced out of business.

AN INDUSTRY-WIDE RISK

Tim Nunziata, Associate Vice President and Head of Cyber Risk, Nationwide

One key challenge is that claims are no longer confined to specific industries.

In the past, claims were largely limited to data privacy and network security
breaches, so therefore, sectors such as banking, healthcare and retail were more
likely to be targeted.

Now, any business could fall victim to a ransomware attack. Consequently, a more
collective approach to controls, policies and procedures is needed to counter
the problem.

Given the global nature of ransomware, consistent data privacy and security
regulation is a big issue. Particularly, in the U.S. where firms may be
operating in multiple states, each with their own legislation.

“One challenge the industry faces is the lack of consistency. Not only is it a low bar for
certain requirements and regulations, often times the bar wasn’t there a
few years ago,” said Nunziata.

The recent introduction of new laws aimed at setting the standard for
cybersecurity and data privacy practices has at least provided the framework for
a broader approach to tackling the problem. New York State Department of
Financial Services’ Cybersecurity Regulation, the California Consumer Privacy
Act, the European Union’s General Data Protection Regulation and China’s
Cybersecurity Law, all aim to step up cyber and data privacy.

Insurers are also reacting to the ransomware threat. The primary markets are
significantly increasing retention, raising rates by as much as 400% in some
areas, supplementing coverage, tightening terms and putting limits on certain
extensions.

“It was a soft market for a long time,” said Nunziata.

“But primary markets are increasing retentions substantially and restricting
certain coverage extensions, because the ransomware incidents have become more
common and complex.”

PREPARING FOR AN ATTACK

Businesses need to prepare for a ransomware attack by putting appropriate risk
management controls and policies in place. They must also have an incident
response plan, which includes secure and reliable backups on separate networks
that are updated regularly and data segmentation in the event of an attack.

Companies should be in regular contact with their insurer to discuss the risk
mitigation strategies they are taking to address the problem both before and
after an attack. They also need to work with their IT and network security, and
cybersecurity teams to constantly test and update their systems and protocols.

Given that ransomware attacks stem from unauthorized access to a system or data
and the fact that more staff are now working from home, organizations need to
focus on their management controls to ensure that access is restricted to only
those who need it to perform their duties. They also need to implement and
reinforce remote desktop working protocols.

“The majority of incidents are self-inflicted,” said Nunziata.

“Whether it’s social engineering or phishing, an employee clicks on a link that
takes them through to a website set up to capture their data or they work in an
unprotected network, the employee is an organization’s biggest vulnerability.”

THE CYBER INSURANCE SOLUTION

Companies, with the help of their broker, need to make sure that their insurance
is comprehensive enough to cover them in the event of an attack. Too often, they
assume that they will be covered under their property, liability, or crime
policies, yet, in reality, they aren’t.

Firms, therefore, need to have a standalone cyber insurance policy in place to
guard against potential exposure.

For those that have property and casualty policies too, insurers are now
explicitly stipulating in their terms whether cyber is included or excluded to
avoid any confusion and gaps or overlaps.

“As insurers examine increased loss history and claims data, they are able to
better assess and price for the risk, and provide the affirmative coverage the
client needs,” said Nunziata.

“That will translate into more comprehensive coverage at a rate which more
accurately reflects the risk and makes sense for the client.”

Nationwide has been at the forefront of cyber insurance for the last 10 years.
The company has built a portal that provides its brokers and clients with
training modules, news and updates on industry trends, and a business
interruption calculator to enable them to get a better understanding of the
risk, as well as access to a list of vendors in the event of an attack.

Nationwide’s Enterprise Cyber Insurance product is designed to improve
organizations’ cyber risk profiles. It provides policyholders with access to a
range of loss prevention tools and services, breach response and remediation
expertise, and an experienced claims team.

No matter how good your cybersecurity is, the criminals are always one step
ahead. That’s why you need to act now to make sure you are taking all the right
precautions to avoid an event happening in the first place.

“Network security and cybersecurity used to be just a conversation that
organizations would have,” said Nunziata.

“Now, they are doing everything in their power to protect customer data,
particularly in light of the rise in ransomware attacks, increased regulatory
scrutiny, and generally more aware and savvy customer base.”

For more information, visit
https://mls.nationwideexcessandsurplus.com/fs/products/cyber-and-professional-liability/.

ABOUT NATIONWIDE
AM BEST RATED A+ XV | S&P A+ | FORTUNE 100 COMPANY
PRODUCTS UNDERWRITTEN BY NATIONWIDE MUTUAL INSURANCE COMPANY AND AFFILIATED
COMPANIES. NOT ALL NATIONWIDE AFFILIATED COMPANIES ARE MUTUAL COMPANIES, AND NOT
ALL NATIONWIDE MEMBERS ARE INSURED BY A MUTUAL COMPANY. HOME OFFICE: ONE
NATIONWIDE PLAZA, COLUMBUS, OH. NATIONWIDE, THE NATIONWIDE N AND EAGLE, AND
OTHER MARKS DISPLAYED ON THIS PAGE ARE SERVICE MARKS OF NATIONWIDE MUTUAL
INSURANCE COMPANY, UNLESS OTHERWISE DISCLOSED. © 2021 NATIONWIDE MUTUAL
INSURANCE COMPANY.

This article was produced by the R&I Brand Studio, a unit of the advertising
department of Risk & Insurance, in collaboration with Nationwide. The editorial
staff of Risk & Insurance had no role in its preparation.

Nationwide, a Fortune 100 company, is one of the largest and strongest
diversified insurance and financial services organizations in the U.S. and is
rated A+ by both A.M. Best and Standard & Poor’s.