Risk and opportunities in the tech, media & telecom sector
Cyber, business interruption and critical infrastructure failures rank as top industry perils facing the sector.
Few industries are moving faster than the technology, media and telecommunications (TMT) sector. It is at the very heart of global innovation, driving technological, societal and economic progress.
Opportunities are immense. For example, 5G has the potential to transform almost all industry sectors, ushering in a new world of hyper-connectivity. By 2035, it is predicted the global 5G value chain — such as the network operators, application developers, technology providers, and equipment manufacturers — could create $3.6 trillion in economic output and support more than 22 million jobs.
Artificial intelligence applications are bringing benefits such as increased efficiencies, new products and fewer repetitive tasks, while the metaverse — the space where interconnected physical and virtual realities converge — has the long-term potential to provide experiences not available in the real world, giving rise to a booming virtual economy. ChatGPT is the next disruption on customer interaction since the prototype of this AI tool was made publicly usable at the end of last year.
The long-term future outlook is positive, yet with such rapid pace of change comes new risks, complexity, heightened regulatory scrutiny and increasingly global exposures.
And, of course, the TMT sector is not immune to the macroeconomic challenges facing other sectors. Geopolitical tensions including the war in Ukraine, supply chain disruption, inflation and tightening monetary policies and the prospect of a looming recession have already had an impact. As with other sectors, sustainability challenges are ongoing — whether it is TMT companies minimizing their own environmental impacts or supporting others on their net zero journeys.
The sector’s top risks
Every year, we ask risk management experts in the TMT sector (and a host of other industries as well) to rank their top risks for the year ahead as part of our annual Allianz Risk Barometer 2023. This year the top-ranked challenges are cyber incidents (59% of respondents), followed by business interruption (36%), with critical infrastructure blackouts or failures (23%) in third.
Given TMT companies hold large amounts of personal information which can be a prime target for criminals, and can be either sold on the dark web or used for fraud or to extort the victim for ransom, it is unsurprising that cyber incidents are a top concern.
In addition, there is a large risk of service interruption and data loss following a disruptive cyberattack, such as in a ransomware or wiperware incident. The latter, also known as “pseudo ransomware,” has risen in parallel with the Ukraine war — it is often used as part of an advanced persistent threat attack against critical infrastructure with its primary purpose being to destroy or cause havoc rather than financial extortion.
Business interruption is the main cost driver for more than 50% of cyber claims globally, AGCS analysis shows, and is a significant driver for the rising severity of claims in recent years. Given the large number of devices connected to a company’s network, ensuring adequate protection can prove to be an extremely challenging task, particularly for smaller-sized companies, and requires deep expertise and an individualized approach.
At the same time, critical infrastructure is increasingly a target. For example, physical attacks on the U.S. power grid rose by over 70% last year, driven largely by ballistic damage, intrusion and vandalism, while physical security incidents involving power outages have increased 20% since 2020, with this increase attributed to people frustrated by the onset of the COVID-19 pandemic, social tensions and economic challenges.
Indeed AGCS analysis of TMT insurance industry claims around the world over a five-year period shows that in recent years companies have filed claims for damages to property and infrastructure resulting from riots, looting and civil commotion activity in the wake of protests such as those surrounding the murder of George Floyd by the police in the U.S. in 2020 (natural catastrophes, fires, and wilful acts/crime are the three most expensive causes of claims).
In addition, the widespread roll-out of new technologies means there is now an increased reliance on cloud providers, data aggregators, application programming interfaces, and other intermediaries. These are all part of our new interconnected world and depend upon critical infrastructure. If a cloud provider goes down, the knock-on effects on an organization and its supply chain can be considerable — the failure of automated systems that rely on shared data could result in lost orders, non-delivery of goods and services and delays to back office functions.
For example, a global outage at Facebook in October 2021 is thought to have cost the company $100 million in lost revenue, according to reports.
Risk management preparation
What the top risks for the TMT sector reveal is the extent to which risks are interrelated and aggregated in the networked world we live and work in. Of course, businesses can never be fully prepared for everything, but continuous monitoring of geopolitical issues, proper risk analysis and consulting with experts, both locally and globally when possible, is a good start. Faced with loss scenarios that can fall like dominoes, businesses need robust, resilient operational processes to safeguard operations, supply chains and ensure business continuity.
Business continuity planning reviews are essential and must be regularly updated. Cyber protection should include regular backups, segmentation of data, the right end-point detection and multifactor authentication. Insurers can leverage company data to facilitate a tailored risk assessment and help draw up a personalized mitigation strategy.
All organizations should also operationalize their response to regulation and privacy rights in relevant jurisdictions. Should the risk landscape change, businesses need to be aware of how this will impact their activities and take steps to protect their assets.
Jody Yee is global industry solution director for technology, media & telecom at Allianz Global Corporate & Specialty (AGCS). Based in London, Yee was previously managing director and global practice group leader, cyber, in the alternative risk transfer division of AGCS.
Opinions expressed here are the author’s own.
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