Contingent Business Interruption Surpasses Cyber Resilience as Primary Risk for Technology Sector in Asia

Discover the latest findings from the Marsh report, revealing how contingent business interruption has emerged as the leading risk for Asia’s technology industry, surpassing cyber resilience.

The heightened volatility in supply chains and increased scrutiny from both consumers and regulators, compounded by the region’s emphasis on manufacturing, have given rise to heightened concerns about operational and governance risks for technology firms in Asia. These findings are presented in the Asia Perspectives section of the Global Technology Industry Risk Study 2023, published by Marsh, a leading insurance broker and risk consultant under the Marsh McLennan umbrella.

The study, which highlights the most pressing risks identified by technology companies in Asia, underscores the growing prominence of contingent business interruption risk. This risk, which involves income loss due to disruptions in key supplier networks, has surged from 7th place in the 2022 report to the top spot (69%) this year. Supply chain disruption (66%), not featured in the previous year’s top 10, ranks second, followed by reputational risk (65%), product recall (57%), and intellectual property risk (53%).

Technology companies are grappling with substantial losses arising from the increasing frequency and severity of extreme climate events, leading to physical asset damage and power instability. Furthermore, the unstable geopolitical climate has caused shortages of vital raw materials like rare earth metals, heightening the potential for production disruption among Asian tech firms. This dynamic has amplified concerns over both contingent business interruption and supply chain disruption. Additionally, inadequate management of reputation risk can lead to financial losses. As scrutiny on operational and environmental, social, and governance (ESG) standards intensifies, concerns about reputational risk are on the rise among Asian technology companies.

As the battle for talent intensifies in Asia, the study uncovers a distinct regional workforce strategy. Merely 17% of surveyed Asian tech companies contemplate downsizing or slowing hiring due to challenging macroeconomic conditions, in contrast to nearly half (46%) of global companies. This discrepancy is largely attributed to the heightened reliance of Asian tech companies on a highly skilled workforce, exacerbating challenges posed by talent shortages, an aging labor pool, and fierce global competition.

The study also highlights potential vulnerabilities in cyber resilience for Asian tech companies, which are juggling competing priorities and immediate and long-term challenges that impede their growth and survival. This is evident in the ranking decline of data security and privacy from the top risk in 2022 to the tenth risk in 2023, as well as the drop in digital business interruption risk from third place in 2022 to ninth in 2023 among Asian companies. With the Asia-Pacific region accounting for over 31% of global cyberattacks in 2022, making it the world’s most targeted region, it’s imperative for Asian technology firms to uphold their cybersecurity budgets, assess the efficacy of their cyber controls across IT and OT systems, and continually review their cyber defense measures.

Larry Liu, Marsh Asia’s leader in the Communications, Media, and Technology Industry, emphasizes that in the current interconnected risk landscape, a single risk event can have a cascading impact across various locations and industries. Asian tech companies are advised to collaborate with reliable risk advisors to comprehensively mitigate and manage risks throughout their ecosystem. This approach involves adopting a holistic perspective on business risks and integrating predictive analysis and scenario planning into an Enterprise Risk Management strategy.

In response to economic challenges like inflation and sluggish market growth, Asian technology companies are venturing into emerging markets like India, Vietnam, and Mexico. However, this international expansion exposes businesses to evolving risk profiles. To safeguard against potential legal claims or disputes stemming from new partnerships, products, or markets, companies must ensure they possess adequate liability insurance coverage. The study also highlights that Asian tech companies, more so than their global counterparts, are keen on exploring opportunities related to emerging technologies such as augmented reality, the metaverse (46% vs. 34%), digital assets (46% vs. 32%), and autonomous mobility (50% vs. 32%). While these new frontiers hold promise, they also expose businesses to a broader array of risks. The lack of well-established regulatory frameworks for emerging technologies creates uncertainties and could lead to unforeseen losses, sanctions, legal conflicts, and reputational harm. In response to a challenging insurance market characterized by rising premiums and reduced capacity, Asian technology companies are inclined to economize by reshuffling their insurance portfolios or reallocating insurance budgets to lower-cost risks. However, this strategy could potentially leave them vulnerable to significant losses in the event of adverse incidents. Larry Liu suggests a different approach. He recommends that Asian tech companies reevaluate their risk-bearing capacity, reshape their insurance programs, and supplement traditional coverage with alternative risk transfer solutions such as parametric and natural catastrophe covers

In an ever-evolving landscape of technological advancement and global interconnectedness, Asian technology companies are navigating a complex terrain of risks and opportunities. The insights gleaned from the Global Technology Industry Risk Study 2023 – Asia Perspectives by Marsh underscore the imperative for these companies to adopt a holistic and forward-looking approach to risk management. As they embrace emerging technologies and expand into new markets, the judicious balance between innovation and resilience will be the hallmark of success. By harnessing the insights of risk advisors, reevaluating strategies, and fortifying their defenses against a myriad of potential challenges, these companies can position themselves not just for growth, but for sustainable and resilient futures in a rapidly changing world.