Energy sector faces BI risk from cyber-attacks, integration, Marsh warns

Energy and power firms face rising risk of business interruption (BI) losses, Marsh has warned. 

Research from the broker suggests BI is also the major risk associated with cyber-attacks on energy firms. 

Asset consolidation and integration among affiliates will also fuel the BI trend in the next decade, Marsh suggested.

Marsh released its report, “Rethinking Business Interruption Risks in an Optimized Oil and Gas Industry”, to coincide with an energy industry event it was holding in Dubai.

Some 76% of energy executives cited BI as the most impactful cyber loss scenario for their organisation, highlighting not only the growing threat cyber risk presents for the energy industry, but also the heightened risk any BI event could have on production and revenues.

Despite more than half of energy executives naming cyber as a top-five risk, 54% of energy executives said they had not quantified or did not know what their worst possible loss exposures might be.

But more firms are falling victim. Some 26% of energy executives surveyed said they were aware that their company had been victim to a successful cyber-attack in the past 12 months.

The energy industry plans to invest more in cyber risk management, said Marsh, with 77% of energy executives surveyed saying their organisations will increase levels of investment in cyber risk management, while 26% plan to purchase or increase their cyber insurance.

Andrew Herring, Marsh’s energy and power practice leader for Europe, the Middle East and Africa, commented: “As the energy industry relies more on interconnectivity as a result of greater digitalisation, the potential for cyber-attacks to cause severe disruption to operations, loss of data, and, consequently, high financial losses, should be a key concern for energy executives.

“While it is encouraging that three-quarters of respondents plan more investment in cyber risk management, it is worrying that over half questioned have yet to quantify their exposures. For those firms that have not put plans in place to mitigate and manage attacks or have not measured their cyber exposure, now is the time to take steps to be prepared for the impact an attack could have on their operations and systems,” Herring added.

The report looked at how supply chain integration and consolidation – such as sharing central utilities, support, and logistics facilities, and production clustering to rationalise less profitable or redundant operating assets – is becoming more prevalent in the global energy sector, as firms strive to save costs, reduce headcount, and boost their competitiveness.

However, this strategy of integration and consolidation is creating heightened BI exposures, according to Marsh, as supply chains become more interdependent and operators become less resilient to respond and mitigate unplanned losses.

“While the integration and consolidation of existing assets and people can increase supply chain value, it may also simultaneously remove operational resilience,” said Andrew George, chairman of Marsh’s global energy and power practice.

“Some parts of the supply chain may become more dependent on each other or become over-stretched, back-ups within the system may be removed, and new single critical failure points can arise. Furthermore, each business is less flexible, and therefore less likely to be able to respond quickly to market opportunities and strategy changes,” George said.

BI risks for energy and power firms are under increasing scrutiny from insurers. According to the study, some recent BI losses have exceeded property damage or machinery breakdown losses “in a significant proportion” of recent insurance claims.

George continued: “Marsh expects operator complexity to continue to grow, as the energy and power industry develops new ways to remain competitive.

“In this challenging environment, it is vital that firms develop their understanding of BI risks and increase their supply chain resilience, in order to protect their assets and maximise their profitability,” he added.