Tuesday, May 22, 2018

Top Asia risks for 2018

Tis the season for risk reports, with the recent launch of the World Economic Forum’s Global Risks Report at Davos and Allianz’s Risk Barometer. So what can risk managers learn about the threat environment in Asia?

The Allianz report features two new risks in its top 10 for Asia: climate change/increasing weather volatility and political risks/violence. There are three rising risks: cyber incidents, new technologies and changes in legislation and regulation.

Overall, business interruption remains the top risk across the region, followed by cyber — which is cited as the top risk in India, Indonesia and Singapore. Indeed, the rise of cyber is perhaps the most notable result, as Asia has typically lagged the rest of the world in terms of appreciating the importance of the issue.

“Every company has been or will be impacted by cyber risk. It is not over-hyped. If anything, it is under-appreciated because the threats are not always well understood,” says Emy Donavan, global head of cyber at Allianz Global Corporate & Specialty, noting that more than 50% of responses rank cyber as the risk most underestimated by businesses. “There are now multiple cyber threats to a company’s digital presence.”

The growing sophistication of attacks was highlighted in December, when a cyber security firm reported that hackers had breached a safety system at an industrial plant. FireEye did not reveal the company involved, but said the attack targeted Triconex industrial safety technology from Schneider Electric, which is widely used in the energy industry, including at nuclear facilities and oil and gas plants.

Growing concerns about cyber are mirrored in the Global Risks Report. Indeed, Juniper Research forecasts that the cost of cybercrime to businesses during the next five years will be US$8 trillion.

The emergence of climate change in the Asia section of the Risk Barometer reflects another area that has been under-estimated in the region. While 2017 was a relatively benign year for natural catastrophe losses in Asia, the scale of the losses in the Americas has clearly helped to drive awareness of the risks posed by a changing climate.

Finding a direct link between climate change and an increase in weather events is not straightforward, as Allianz points out. But research published in The Lancet shows there was a 46% increase in weather disasters between 2000 and 2016, with 797 “extreme” events recorded in 2016. Combined with rapidly increasing urbanisation, this represents an acute risk for Asia’s coastal megacities.

Finally, the other new entrant —political risks and violence — is, in fact, more like the return of an old and familiar risk for the region. However, this time it is driven less by the type of internal strife that has dogged Thailand, the Philippines and Indonesia, among others, over the years. Instead, we can assume that the return of this risk is at least in part the result of rising tensions on the Korean peninsula, which also effect neighbouring countries Japan and China.

“The escalation of geopolitical risks was one of the most pronounced trends of 2017, particularly in Asia, where the North Korea crisis has arguably brought the world closer than it has been for decades to the possible use of nuclear weapons,” as noted in the Global Risks Report.

However, the Allianz report reveals a surprising nuance: political risks and violence is ranked lower in South Korea than in either China or Japan. And it is not ranked highly in any countries in the region.

As the risk management profession develops in Asia, businesses in the region are clearly starting to develop a more sophisticated understanding of the threats to their operations and to put in place strategies to mitigate or minimise those risks. Some of these risks are more challenging than others — and the fact that business interruption and cyber top the list is a reflection of this.

Awareness of risk is one thing. Finding solutions is quite another.

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