The COVID-19 pandemic may have opened a “Pandora’s Box” of cyber business interruption risks, according to Georgi Pachov, head of Portfolio Steering and Pricing at Allianz Global Corporate & Specialty (AGCS).
Pachov’s suggestion was made as part of the latest Allianz Risk Barometer, which reveals (unsurprisingly given the unprecedented disruption caused by the coronavirus outbreak) that business interruption and pandemic outbreak top this year’s survey.
“The pandemic has demonstrated the need to ‘expect the unexpected’ and watch out for the pitfalls of digitalisation,” Pachov said.
“We may be about to open a box of ‘Black Swan’ events, with unexpected consequences from the pandemic, such as future cloud outages.”
“Everybody is rushing to embrace technology and embark on digital transformation, which could put technology companies under immense pressure to meet growing demand for cloud and other IT services,” added Philip Beblo, global practice group leader Utilities & Services, IT Communication at AGCS.
“Tech companies will be working close to capacity and there will come a point when technology and servicing will become stretched or reach their limitations. If digitalization is not done properly [with due consideration for the risk/building resilience] then a future ‘Black Swan’ scenario involving the failure of a major cloud provider could become a reality,” Beblo said.
According to the report, pre-COVID, both society and business were already growing more dependent and reliant on technology and intangible assets and this trend is likely to accelerate as companies change business models and ways of working.
According to the report: “COVID-19 will likely spark a period of innovation and market disruption, accelerating the adoption of technology, leading to regulatory changes, as well as hastening the demise of incumbents or traditional sectors, and giving rise to new competitors. A survey by McKinsey3 found that companies may have accelerated the digitalization of supply chains and operations by three to four years, while the importance of digital products has accelerated by seven years.”
It added that Society’s growing reliance on technology and the threat posed by cyber is a particular area of concern:
“Technology is a double-edged sword for business interruption. While it can be a useful tool for business continuity, for example by switching to remote working and process monitoring or online sales and servicing, it also brings new risks.
“The digitalization of supply chains could potentially reduce the frequency of business interruption events, but it may also lead to more severe disruption when the underlying technology goes wrong.”
“Digitalization increases transparency in the supply chain, which means organisations can react faster and better,” said Pachov. “However, a cyber-attack or a technical failure causing a major outage could lead to a severe business interruption event.”
Overall, pandemic risk is the biggest climber this year (up 15 positions), with cyber incidents ranking a close third.
Allianz noted that all three risks – and many of the others in this year’s top 10 – are interlinked, demonstrating the growing vulnerabilities and uncertainty of our highly globalized and connected world, where actions in one place can spread rapidly to have global effects.
Looking forward, it suggested that the pandemic shows companies need to prepare for a wider range of business interruption triggers and extreme events than previously. Building greater resilience in supply chains and business models will be critical for managing future exposures.
The Allianz Risk Barometer is a survey of the most important corporate perils for the next 12 months and beyond, based on the insight of 2,769 risk management experts from 92 countries and territories.