Regulatory and legislative change is the new number one business concern for New Zealand and Australian businesses in 2013/14.
Deteriorating local economic conditions and the impact of people risk are the next biggest concerns, according to
Aon’s 12
th annual Australasian Risk Survey.
The survey provides a snapshot of the risk management practices of 380 businesses operating in 15 key industry sectors, including 23 of the ASX top 100 Australian companies.
The top 10 risks are:
1 Regulatory and legislative change
2 Local economic conditions
3 People risk
4 Increasing competition
5 Brand & image
6 Global economic conditions (new in 2014)
7 Human resources
8 Weather and natural disasters
9 Failure to innovate
10 Business interruption and supply chain risk
Speaking about this year’s survey, Lambros Lambrou, CEO of Aon Risk Solutions in Australia, said that the jump to number one of regulatory and legislative change from number three last year, was a reflection of the growing burden and pace of change and the costs and effort companies must undergo to address it.
“Regulatory and legislative change has been moving up consistently through the top ten risks over the past few years,” he said.
“Legislative change adds cost pressure to a company’s bottom line in many ways, both directly where it results in more restrictive working conditions and potential additional fines and penalties and indirectly, for example in compliance costs.”
Lambrou said it was more critical than ever for organisations to positively manage change, remain flexible and attuned to the evolving landscape: in particular to the implications of change both for the day to day running of businesses and the bigger governance and board level picture.
“Having the systems in place to support effective risk management is increasingly a determinant of a business’ ability to succeed in fast-moving and challenging times,” Lambrou said. “And not all such systems are created equal.”
People risk was the fastest mover in the top ten this year, moving up eight positions from outside the top ten to third in the survey.
Lambrou said there were a number of reasons for this: “The cost of Workers’ Compensation insurance is increasing and has led to a greater focus on injury prevention and early intervention.
“Harmonisation of work health and safety laws across most states and territories has also increased awareness of the issue.
“The need to manage these increasing costs is a clear business imperative. Companies that positively manage their people risk issues by taking specialist advice can significantly reduce costs.”
The overall view on insurance pricing among respondents was positive. Most said they expected the cost of premiums to remain stable or decrease slightly, based in part on surplus capacity and strong insurer competition.
Lambrou said it was of real note that the top ten business risks included a number of external concerns that are largely uninsurable. These include local and global economic concerns, and increasing competition at number four. At the same time, the median total cost of insurable risk fell marginally.
“Companies are under pressure to reduce costs and that includes their insurance spend. As a result they are looking for evidence of the bottom line benefits of an effective risk management strategy.
“Many are looking at alternative, non-traditional risk transfer solutions, such as captives, weather derivatives, catastrophe bonds and insurance linked securities, just to name a few,” he said.
Lambrou concluded by citing recent research conducted by Aon and the Wharton School at the University of Pennsylvania had found a direct correlation between risk management performance and favourable financial results when analysing return on shareholder equity.
“Developing innovative and robust risk management strategies therefore makes extremely good business sense,” he said.
