At this year's World Economic Forum (WEF) in Davos, one of the recurring topics was the impact of the so called 4th Industrial Revolution and the blurring of the lines between physical and digital worlds. New technologies such as artificial intelligence, robots, autonomous vehicles and the internet of things are no longer the domain of Sci-Fi films - they are reality - disrupting industry, redefining the workforce and feeding political, social and economic upheaval.
Our own research bears out these themes. Our latest Risk and Confidence report revealed that three quarters of business leaders are focusing their investment fire power on technology and cutting back on staff in a drive to improve efficiency, increase profitability and enhance customer service.
Technology is a double-edged sword
Although technology offers fantastic opportunities to deliver new services that reduce human error and risk, the very interconnectivity of machines, systems and processes creates new security, data protection, business continuity and third-party liability risks, as well as increasing the potential for critical infrastructure breakdown.
The UK banking sector is a prime example of tech risk in action. Despite investing billions to overhaul outdated and overloaded IT systems, high street lenders suffered a string of outages in 2018, most notably at TSB, but also at Barclays, RBS and HSBC. Customers were left unable to withdraw cash, access apps or pay their staff.
The experience of the UK banking sector in 2018 was a lesson, if one were needed, on the severity of tech risk and how it can lead to less obvious, but equally severe, interconnected risks.
As a result of the TSB failure, the UK House of Commons announced a public enquiry, the FCA and ICO launched regulatory investigations and there was widespread loss of consumer confidence and significant reputational damage. TSB estimates the whole debacle cost it over £330m in loss of revenue and customer compensation, in addition to the loss of around 80,000 customers in 2018 (a 166% increase on 2017).
Business leaders under-rate risk in a tech-enabled world
Concerningly, the business leaders that we surveyed in November '18 continue to under-rate the potential risks that the new tech-enabled world creates. Only 13% of the business leaders we surveyed ranked regulatory and compliance risk as a top concern, and just 6% recognised reputational risk as a significant risk - despite the numerous examples during 2018 of the regulatory and reputational impact of a large-scale cyber incident.
In a world where every business is a technology business, the cyber threat is ubiquitous, creating opportunities for criminals and rogue nation states to exploit weaknesses in business systems and even national infrastructure. One need only need to look at the impact on global shipping line Maersk - shut down for 10 days by the NotPetya attack, at an estimated cost US $200-300m in business interruption losses - to understand the havoc that cyber attacks can wreak on companies, even in the most traditional of industries.
Interconnected risk resilience
In a technology-driven, integrated world, our aim must be to understand and manage interconnected risks more quickly and prevent losses before they occur, augmenting our services with AI and other new technologies to boost our risk analysis and help identify and manage key vulnerabilities.
The reality of interconnected risks means that insurers, brokers and risk managers will need to work ever more closely together to build appropriate resilience into business systems, processes and assets if we are to navigate the 4th Industrial Revolution successfully.
1CNA Hardy Global Risk and Confidence Report Nov '18 - https://www.cnahardy.com/news-and-insight/news/risk-is-global-but-confidence-is-local