A report from the recent WEF annual meeting in Davos, where improving global growth was earmarked as offering a chance to tackle a range of modern risks.
It is not just the risk of hurricanes and high tides that businesses must be braced for in future, but an increasingly huge wave of cyber and data attacks posing an imminent economic threat.
As 3,000 leaders from more than 100 countries came together at the World Economic Forum (WEF) annual meeting in Davos, Switzerland, the Global Risks Report 2018 was published, revealing that recorded cyber breaches have nearly doubled in the past five years and that anticipated attacks in the next five years are expected to cost businesses $8trn.
The report – in partnership with Marsh & McLennan and Zurich – ranks a range of risks for likelihood and impact, including terrorism, illicit trade, food and water crises and environmental threats. It argues that the prospect of strong economic growth in 2018 presents leaders with a golden opportunity to address weaknesses in many of the complex systems that underpin the world.
Klaus Schwab, founder and executive chairman of the WEF, said: “This year’s report grapples with some of the most pressing challenges that we face, including biodiversity loss, cybersecurity threats, rising geopolitical tensions, and the risk of another financial crisis erupting.”
ATTACK AND DEFENCE
Cyberattacks and massive data fraud both appear in the report’s list of the top five global risks by perceived likelihood. It explains: “Cyber breaches recorded by businesses have almost doubled in five years, from 68 per business in 2012 to 130 per business in 2017.
“Having been choked off by law enforcement successes in 2010-2012, ‘dark net’ markets for malware goods and services have seen a resurgence. In 2016 alone, 357 million new malware variants were released and ‘banking trojans’ designed to steal account login details could be purchased for as little as $500.”
The financial cost of cyberattacks is also on the rise. A 2017 study of 254 companies across seven countries put the annual cost of responding to cyberattacks at £11.7m per company, a year-on-year increase of 27.4%, with the cost of cybercrime to businesses during the next five years expected to reach $8trn.
The report also highlights that the internet of things is expected to expand from an estimated 8.4 billion devices in 2017 to a projected 20.4 billion in 2020.
Another of the report’s main focuses is the extreme weather events last year, examining the unusually frequent Atlantic hurricanes, which included three major, high-impact storms: Harvey, Irma and Maria.
“According to the accumulated cyclone energy (ACE) index, which is used to measure the intensity and duration of Atlantic storms, September 2017 was the most intense month on record,” notes the report.
“It was also the most expensive hurricane season ever. These extreme incidents continue a trend towards increasingly costly weather events in recent decades, although rising costs reflect factors such as the location and concentration of assets as well as changing weather patterns.”
Also covered was California, which experienced its hottest summer ever and wildfires across the US, which were more than 46% above the 10-year average, as well as Chile, which suffered its most extensive wildfires ever and Portugal, where more than 100 wildfire-related deaths were recorded.
A longstanding risk closely examined is the health of the financial system, even though progress has been made to stabilise the banking system following its near collapse in 2008. “Regulators have overseen an increase in the core capital ratios of 30 globally systemic banks, from 10.3% at the end of 2011 to 12.6% at the end of 2016,” states the report. “Widespread changes in the structure of the sector include collapses, mergers and a politically sensitive supranational ‘banking union’ in the eurozone.
“Restrictions such as the Volcker Rule, which since 2015 has prohibited banks in the US from making market bets with their own capital – have been put on the risks that banks are allowed to take. And there has been a winding down of the sector’s reliance on wholesale interbank lending, a potentially volatile source of funding that evaporated in 2008 as banks began to lose trust in each other’s creditworthiness,” the study notes.
Despite reasons to be optimistic, there is still great need for caution and, although there have been increased calls for radical reform of the fundamental principles of banking, there does not currently appear to be political will to bring in major reforms.
The report and an interactive data platform are available at: wef.ch/risks2018
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