"Businesses need to prepare for a wider range of disruptive forces in 2016 and beyond," says Axel Theis, Member of the Board of Management, Allianz SE. "The increasing impacts of globalization, digitalization and technological innovation pose fundamental challenges to many businesses and business models. The world is becoming increasingly competitive as market entry barriers come down."
However, businesses appear less concerned about the impact of traditional industrial risks such as natural catastrophes (storm, flood, earthquake) and fire, explosion compared with previous years, according to responses. These perils are two of the biggest fallers in the 2016 rankings. Natural catastrophes drops two positions to fourth year-on-year, down six percentage points, reflecting the fact that insurance claims from natural disasters fell to $27bn during 2015 - with nat cat losses at their lowest level since 2009 - according to reinsurer Munich Re. Fire, explosion drops further, falling from third in 2015 to eighth in 2016, down 11 percentage points.
Rising risk priorities
The 2016 Risk Barometer results show businesses are more concerned about a number of operational issues which are placing increasing pressure on their markets and challenging business models.
"The corporate risk landscape is changing, as many industrial sectors are undergoing a fundamental transformation," says Chris Fischer Hirs, CEO, AGCS. "New technologies, increasing digitalization and the 'Internet of Things' are changing customer behavior, industrial operations and business models, bringing a wealth of opportunities, but also raising awareness of the need for an enterprise-wide response to new challenges.
Intensified competition, particularly from non-traditional competitors and agile start-ups, is one of the drivers behind market developments appearing in the top three risks for the first time, ranking second with 34% of responses.
Increasing digitalization and technological innovation is also anticipated to have more of an impact in future, according to responses.
Integration of interconnected digital and physical technology, such as 3D printing, nanotechnology, driverless cars and "smart" cities and factories, for example, is predicted to deliver many benefits including increasing efficiency and service levels, greener technology and reduced maintenance. However, such benefits are also accompanied by a number of potential new operational, security and strategic risks for businesses.
Entering the top three business risks for the first time in third position with 28% of responses, meaning it ranks as a greater concern for businesses than natural catastrophes, cyber incidents (cyber-crime, databreaches, IT failures) is the significant mover in this year's rankings, up 11 percentage points. It is also the top future risk, according to responses, while the increasing sophistication of cyber-attacks is the impact of digitalization companies fear most.
New technologies (impact of increasing interconnectivity and innovation) is also one of the biggest risers in the rankings year-on-year. In 2015 it ranked 19th with just 3% of responses. In 2016, it ranks 11th with 10% of responses.
Macroeconomic developments (austerity programs, commodity price increase, inflation/deflation) also appears in the top 10 global risks for the first time in sixth position, driven in part by the fact it is the top risk in the Africa & Middle East region.
Political risks (war, terrorism, upheaval) remains a priority concern for businesses, maintaining ninth position. According to 54% of responses, multinational businesses are most concerned about the disruptive impact any instability or incident can have on their supply chains, followed by the impact of an act of terrorism (38%) and the introduction of sanctions (34%).
Download the full Allianz Risk Barometer survey here.