Losses Associated with Top 10 Risks
Aon's 2021 survey shows that losses from the top 10 risks have on average increased by 10 percent compared with last year, reaching 36 percent overall. This represents the biggest-ever average loss of income experienced in 12 months due to the top 10 risks since the beginning of the survey in 2007.
While this would be a sizable increase in any common two-year period, during a global pandemic this shows a certain level of resilience, especially when organizations had to also face issues that they feel might impact them at some stage in the future, including increased competition and regulatory or legislative change (Brexit, climate change, trade wars, economic sanctions and so on).
A closer examination of losses from the top 10 risks reveals another side of the story. While some insurable or partially insurable risks, such as business interruption, supply chain or distribution failure, and pandemic risk and health crisis, are trending negatively and have experienced steep increases in losses of income, others in the same category, such as the risk of cyber attacks and data breaches, only show a small increase in loss of income.
Losses from Top 10 Risks
The latter shows a story similar to our 2019 findings; namely, that losses for cyber attacks could be underestimated for two reasons. First, the impact of many hackings and disruptions is not accurately reported because cyber-related losses are more often viewed as an operational expense. Secondly, losses from cyber events that have disrupted businesses are being recorded as business interruptions, a category that has reported a 13 percent increase of loss of income. Of course we cannot discount the positive impact of rising public awareness and the proactive risk mitigation techniques taken by many organizations. These reasons could have contributed to the low reports of cyber-related losses.
Losses related to damage to reputation/brand have decreased in the 2021 survey, which could be because they might not be connected as obviously to loss of income as other risks. However, the fear of a loss related to reputation or brand damage is high, and that is why the risk has remained within the top six risks since 2007. Now, more than ever, industries have to work together to find solutions for this risk.
Interestingly, uninsurable risks show a similar trend. While loss of income from economic slowdown/slow recovery has almost doubled since 2019, increasing competition and regulatory/legislative changes have not caused as much loss of income compared with 2019.
In front of the COVID-19 pandemic, the most disrupting global event to affect most companies in the world, we see the reported loss of income numbers as a reflection of the increased interconnectivity of risks. In other words, income losses cannot be allocated solely to any one risk category anymore. We predict that the pace of these changes won’t slow down for a while, so we advocate for a cohesive enterprise-wide risk management approach.
When breaking our data down by region, we see the Asia Pacific region has reported the highest increase in loss of income, from 23 percent in 2019 to 37 percent in 2021. This can be linked to the region’s early exposure to the pandemic, its slow vaccination program and the fact that the region is home to the largest number of suppliers for manufacturing components for many key industries across the globe.