Companies feel less prepared to face greater uncertainty

Corporate risk profiles are changing fast, but European companies are feeling less well prepared, according to Rory Moloney, chief executive of Aon’s Global Risk Consulting business. “Globalisation brings opportunities for international and large corporates, but never has the speed with which the risk profiles of corporates are changing been starker,” he told CRE. Corporate risk profiles are being driven by key trends – macroeconomic, geopolitical and demographic – that are all underpinned by rapid technological change, according to Mr Moloney. He pointed to the findings of Aon’s 2017 Global Risk Management Survey, a poll of risk professionals working in close to 2,000 organisations, which was dominated by risks directly connected to these trends. Economic risks came in at number two, followed by increased competition and regulatory and legislative change. Political risk moved up from number 15 in 2015 to ninth place in 2017, while cyber moved up to fifth place and failure to attract or retain top talent to seventh. Damage to brand and reputation, the top concern for risk professionals, was notable because it is highly connected to many other risks, such as cyber and talent, noted Mr Moloney. What may first appear as a standalone incident can result in reputational damage, he added. Given the extent of change in the risk landscape, it is not surprising that many organisations feel less prepared to deal with risks than they did in the past. Aon’s survey showed a continued downward trend in average risk readiness for the top ten risks. Overall preparedness has dropped from 59% in 2013, to 58% in 2015 and 53% in 2017. The biggest drop in risk readiness is for economic slowdown, from 54% to 30% between 2013 and 2017. Risk readiness for political risk showed the lowest levels of preparedness in 2017, at only 27% and a 12 percentage point decrease on 2015. Companies in Europe showed one of the biggest reductions in risk preparedness to 47% in 2017, from 58% in 2015 and 55% in 2013. US companies appear more confident in their ability to face the top ten risks at 63%, down from 69% in 2015. Speaking to CRE at this year’s Ferma Forum in Monte Carlo, Mr Moloney said: “We see that the average preparedness is reducing at a time of fast-changing corporate risk profiles, increased sensitivity to financial volatility and an increased complexity of risk. So it is not surprising that companies feel less well prepared.” The antidote to managing a dynamic risk profile fuelled by greater political and economic uncertainty could be a proactive and holistic approach to enterprise risk management (ERM), according to Mr Moloney. “It is about taking a risk perspective. We see the role of the risk manager evolving into a truly integrated function, helping companies understand the key issues and risks that present the potential for volatility and so threaten the overall strategy of an organisation. Having a holistic approach has never been as important,” he said. “The role of the risk manager has evolved to develop a clear understanding of all risks that potentially bring volatility to a business, with a view to identifying the critical risks and helping prioritise capital expenditure, the deployment of capital on risk management and mitigation resources, as well as utilisation of risk retention and insurance,” he said. Mr Moloney noted that many corporates are already retaining large amounts of volatility on their balance sheets. Organisations are increasingly concerned about risks that disrupt business, earnings and reputation, as well as the traditional focus on protecting assets like property, he explained. The recently published Aon/Ponemon Institute EMEA Cyber Risk Transfer Comparison Report 2017 notes that physical assets are four times more likely to be covered by insurance than intangibles. “But many businesses today do not own physical assets,” said Mr Moloney. Of the 55 risks considered by Aon in its risk management survey, only 14 are covered by traditional insurance. However, a further 13 are partially insurable. These include reputational risks, intellectual property, climate change, technology failure, supply chain disruption, cybercrime and political risk. “Moving forward, there is an exciting opportunity for the insurance industry to increase the value proposition for its clients by expanding its offering to include what are currently non-or partially insurable risks, and respond more to areas of uncertainty for corporates,” concluded Mr Moloney.

Companies feel less prepared to face greater uncertainty

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