Risk readiness drops to 12-year low

Aon’s most recent report made for troubling reading after it revealed businesses are poorly prepared for the increasingly diverse range of risks they currently face.

Released last week, Aon’s 2019 Global Risk Management Survey found that the risk landscape is continuing to expand and evolve – yet risk readiness has dropped to a 12-year low.

Greg Case (pictured), president and CEO of Aon, admitted the outcome of the report was worrying.

“Every organisation, industry and economy around the world is confronting more risks than ever before,” said Case. “Considering this backdrop, it’s troubling that many organisations report that they may be less prepared than they have ever been.”

According to the survey, the overall risk readiness for the top 10 risks dropped from an already underwhelming 53% in 2017 to just 51% in 2019.

“Organisations need to be more prepared for the broad range of risks that threaten their ability to continue growing, protecting their brand and serving clients and stakeholders,” said Case.

The report pooled responses from more than 2,600 risk managers across 33 industries and 60 countries – one of the key takeaways, according to Case, is that companies are not making the most of the technology and strategy that already exists.

“Many organisations have yet to capitalise on new tools and approaches that could help them systematically identify and assess risks as they develop protection and mitigation strategies,” he said.

According to the report, only 24% of respondents quantify their top 10 risks, only 20% use risk modelling and 10% have no formalised process in place to identify risks.

“The most effective organisations will approach these challenges holistically, involving leaders throughout the organisation to provide their unique viewpoint and expertise and then applying sector-specific data and predictive analytics to support the decisions they make,” said Case.

“This is an opportunity for more risk managers to lead an evolution toward truly addressing risk at the enterprise level.”

Preparedness for economic slowdown/slow recovery registered the lowest level across the globe, at only 26%, down from 30% in 2017 and 39% in 2015.

However, given that this risk is primarily an external threat caused by macroeconomic conditions, the lack of preparedness is more understandable than other categories.

Among the risks less-prepared for, managing failure to innovate/meet customer needs presented key challenges, with its risk readiness falling by 11% between 2017 and 2019.

Risk readiness for increasing competition also reduced, dropping 45% in 2017 to 38% in 2019. This reduction is linked to broader trends such as digitisation, increased globalisation and lower barriers to entry.

It is worth noting, however, that preparedness for business interruption and cyberattacks/data breach reported the highest levels of risk readiness.

“The extensive media coverage of high-profile cyberattacks and related business interruption undoubtedly increased awareness, prompting many organisations to implement plans to protect themselves from the possible impact of such events,” said Case.

“Additionally, since cyber risk is a relatively new exposure, many businesses feel that the mitigants they have put in place are current and up to date,” he continued. “That confidence positively influenced their perception of effectiveness.”

While global unpreparedness is certainly cause for concern, the APAC rankings are particularly worrying, given that the region dropped a huge 15% in reported readiness.