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Cyber Incidents Top Risk for Financial Services in 2024 – Allianz

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Top Concern For Financial Services Sector
Top Concern For Financial Services Sector

The financial services sector faces escalating threats from cyber incidents, according to the Allianz Risk Barometer.

The report reveals that cyber incidents have become the foremost concern for financial institutions in 2024, with 43% of respondents identifying it as a significant risk. This rising apprehension is driven by a surge in ransomware attacks, with insurance claims activity increasing by over 50% compared to 2022.

The Allianz Risk Barometer, an annual survey by Allianz Commercial, collects insights from industry experts and executives across the financial services sector and other industries. The survey indicates that cyber incidents are closely followed by macroeconomic developments and changes in legislation and regulation, both at 26%. Business interruption and natural catastrophes also pose notable risks, with 22% of respondents expressing concern about each.

Hackers are increasingly targeting IT and physical supply chains, launching mass cyber-attacks, and developing new extortion methods. Consequently, early detection and response capabilities are becoming crucial. Investment in detection technologies, supported by artificial intelligence, is anticipated to enhance incident identification. Without effective early detection tools, companies risk prolonged unplanned downtime, increased costs, and a more significant impact on customers, revenue, and reputation.

“Cybercriminals are leveraging new technologies, such as generative artificial intelligence (AI), to automate and accelerate attacks, creating more effective malware and phishing schemes. The growing number of incidents due to poor cybersecurity in mobile devices, a shortage of millions of cybersecurity professionals, and the vulnerability of smaller companies relying on IT outsourcing are expected to drive cyber activity in 2024,” explains Santho Mohapeloa, Cyber Insurance Expert at Allianz Commercial.

In addition to cyber incidents, financial services respondents also highlighted macroeconomic factors such as inflation, which remains one of the most challenging risks to manage in 2024. Inflation can have long-term consequences, with investments taking time to regain value even after economic recovery. Furthermore, inflation triggers higher interest rates, increasing net interest income but slowing loan demand and heightening default risk.

Compliance is another significant challenge for financial services companies, with legislation and regulation constantly evolving around digitization, climate change, and environmental, social, and governance (ESG) issues. The compliance burden for financial institutions has significantly increased over the past decade, with regulatory enforcement intensifying. To navigate these challenges, financial institutions must enhance the effectiveness and efficiency of their compliance activities and make wise use of data and technology.

Business interruption poses substantial risks to the financial services industry, including operational disruptions, revenue loss, reputational damage, and regulatory compliance challenges. Cyber incidents and natural catastrophes are the top two causes of business interruption feared most by companies, followed by fire and machinery/equipment breakdown or failure. To mitigate these risks, companies must focus on improving business continuity management, identifying supply chain bottlenecks, and developing alternative suppliers.

Natural catastrophes also present significant risks to the financial services industry, including physical damage to infrastructure, operational disruptions, increased insurance claims, and potential liquidity challenges. The financial implications of natural disasters were underscored by the USD 82 billion in insured losses globally in 2021. To effectively manage these risks, financial institutions must prioritize robust risk modeling, diversification strategies, and disaster preparedness measures.

The Allianz Risk Barometer is a valuable tool for financial services companies to identify and address the most pressing risks they face. By understanding these risks and implementing proactive risk management strategies, companies can safeguard their operations, protect their customers, and maintain financial stability in an increasingly volatile global business environment.

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