Uninsurable risk to the fore in Aon survey with brand damage top concern

Cyber risk, ranked ninth and deemed partially insurable by Aon, has entered the top 10 for the first time since the broker started its bi-annual survey in 2007. Of the top 10 risks in 2015, the first six are uninsurable. The survey also reveals that only 63% of respondents believe their firms are ready and prepared to deal with the top 10 risks. Only 53% use a structured approach to risk assessment. According to Aon, the survey’s findings point to an increasing interconnectivity of risk, a difference in risk perception between risk managers and the C-suite and the need for insurers and risk managers to get to grips with a new set of insurable and uninsurable risks. They also suggest that risk management is not advancing as quickly as many would like.hideThe overall Aon risk ranking combines the opinions of 1418 risk professionals, C-suite executives and ‘others’. Each of these three groups accounted for roughly one third of the total responses. Respondents were from organisations operating in 60 countries, 28 industry sectors and a mix of private and public companies. The overall top 10 risks are: 1. Damage to reputation/brand: +3 from 2013 2. Economic slowdown/slow recovery: -1 from 2013 3. Regulatory/legislative changes: -1 from 2013 4. Increasing competition: -1 from 2013 5. Failure to attract or retain top talent: = 2013 6. Failure to innovate/meet customer needs: = 2013 7. Business interruption: = 2013 8. Third party liability: +5 from 2013 9. Cyber risk (computer crime/hacking/ viruses/malicious codes): +9 from 2013 10. Property damage: +7 from 2013 Aon said that damage to reputation/brand placing as the number one risk reflects the fact that ‘all risks lead to brand’ in an increasingly interconnected world. It ranked as a top concern across almost all regions and industries. Economic slowdown/slow recovery, which has consistently ranked as the number-one risk facing companies worldwide since 2009, has slipped to number two in 2015. It remains the number one concern in Europe. Worldwide, the number of respondent organisations reporting loss of income in the preceding 12 months has dropped from 67% in 2013 to 46% in 2015. Aon said that as overall concerns over economic slowdown lift, organisations reveal a host of other daunting challenges driven by both external and internal factors in today’s globally interdependent environment. While new risks such as cyber security have moved centre stage, old risks like damage to reputation/brand and increasing competition are taking on ‘new dimensions and complexities’, said Aon. The broker added that these constantly evolving and interconnected challenges have made risk management a ‘necessity for survival and a key driver for success in this diverse, competitive and fragile marketplace’. Beyond the top 10 risks, notable climbers include D&O risk that ranked 20, up from 34 in 2013, and corporate social responsibility/sustainability up to 22 from 47 two years ago. Moving in the other direction political risk fell from 10 to 15. Stephen Cross, Chief Innovation Officer at Aon Risk Solutions, said: “The insights provided by this survey help us understand how risks are changing as the global environment evolves. It’s little surprise to see cyber risk enter the top 10—at the same time we are seeing increasing concern about corporate reputation as the two issues are a great example of the interconnectivity of risk.” Rory Moloney, Chief Executive Officer, Aon Global Risk Consulting, said the survey reveals a number of different challenges driven by today’s globally interdependent environment. “While new risks such as cyber have moved to centre stage, established risks like damage to reputation or brand, are taking on new dimensions and complexities. The interconnected nature of these risks reinforces the importance of strategic risk management in every organisation,” he said. One of the survey’s key findings is that six of the top 10 risks are uninsurable. A large proportion of these risks, such as increasing competition and economic slowdown, are business risks that require a pure risk management approach and do not, nor likely ever will, lend themselves to risk transfer. These kinds of risk need to be managed by building resiliency, said Mr Moloney. “If you have mature risk practices, entities tend to be more resilient when stress comes on from these risks,” he said. But some of the other top ten risks that are currently uninsurable do require a transfer solution and a better response from the risk transfer industry, he continued. “As you dive down into damage to reputation or brand there are areas for which the insurance industry could respond…some of these exposures could be insurable,” said Mr Moloney. “I think we actually have to respond,” he continued, “we need to move quicker than we are going.” He believes the data exists for insurers and brokers to provide better solutions to such risks but is not always easy to get hold of. The survey respondents were asked what changes they would most like to see in the insurance market. The majority said they desire more flexibility (65%), followed by broader coverage/better terms (64%), better recognition of investments in internal risk management (50%), improved documentation accuracy and timeliness (37%) and more product innovation (32%). These figures remain consistent with those in previous Aon Global Risk Management surveys. “It’s a clear indication that organisations are expecting their insurers to offer broader terms and more flexible solutions for meeting risk management objectives as they are coping with new risks and challenges,” said Aon. With many of the top ten risks strategic level business threats you would assume that the role of the risk manager is fundamentally changing and becoming more senior. But the survey hasn’t seen an increase in respondent organisations employing chief risk officers (CRO) or an improvement in preparedness for the leading risks. The ‘overall readiness’ of organisations for the top 10 risks stands at 63% in 2015, similar to that in 2013. Risk readiness refers to a company’s level of risk preparedness—whether it has undertaken a formal risk review and has a comprehensive risk management plan in place. “The result, though positive, falls below expectation. Given the attention and scrutiny that risk management practices have received from stakeholders since the financial crisis, one would expect an uptick in the percentage point,” said Aon. Only 28% of respondents said their organisation employs a CRO, the same as in 2013. 59% say they do not have a CRO nor plan to employ one, down from 63% in 2013. “The trend is risk management is being taken more seriously, but I don’t think it is translating into C-suite activity as quickly as it is translating into risk management department creation,” said Mr Moloney. He pointed out there has been a 13% increase in the number of entities that have formed insurance buying departments or functions. He believes this is because SMEs increasingly see risk management and transfer as an important issue. Mr Moloney said that too many organisations are still taking a siloed approach to risk management rather than an enterprise-wide approach. “I think we are still seeing an element of that siloed approach to managing risks. In terms of responding in a connected way to the connected risk profile, ERM is a practice that we are trying to adopt with our clients,” said Aon Global Risk Consulting’s CEO. Grant Foster, Head of Enterprise Risk Management at Aon Global Risk Consulting, said that insurance managers are increasingly involved in ERM and bringing benefits to that process. “We are, certainly for our global clients, seeing more and more insurance teams getting involved in the ERM process and those risk processes converging at a high level,” he said. “We have found that the insurable risk-orientated individual brings a lot of discipline to the ERM sphere. What are insurance people good at? Data and quantifying. When we use those skills that works very well in the ERM space where typically someone at high level is saying is that a red, green or amber risk without going into enough detail or quantification,” he added. The Aon survey breaks down rankings into respondent groups, regions and industry. In Europe the top 10 risks in 2015 are: 1. Economic slowdown/slow recovery 2. Increasing competition 3. Damage to reputation/brand 4. Regulatory/legislative changes 5. Business interruption 6. Failure to innovate/meet customer needs 7. Third-party liability 8. Commodity price risk 9. Failure to attract or retain top talent 10. Cash flow/liquidity risk The survey finds a marked difference between perceptions of the C-suite and risk managers. Typically, financial and economic risks, including commodity price risk, economic slowdown and technology failure, are seen as damaging at C-suite level with risk managers more focused on liability-related risks such as cyber, property damage and third party liability. “Such diverse views illustrate how imperative it is that the board of directors have effective and regular communication with risk managers to effectively assess and mitigate the company’s risk exposure,” said Aon Risk Solutions’ Mr Cross.

Uninsurable risk to the fore in Aon survey with brand damage top concern

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