Regulatory and legislative change number one concern
Increasing regulatory and legislative change Australia’s new number one business concern – Aon’s Australasian Risk Survey
Call for companies to adapt, innovate and proactively manage the changing risk landscape
Sydney, 6 May 2014: Regulatory and legislative change has assumed the prime position as the leading risk for Australian and New Zealand businesses in 2013/2014, followed by concern regarding deteriorating local economic conditions and the impact of people risk.
These are the major findings of Aon’s (NYSE:AON) 12th annual Australasian Risk Survey, which 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.
Aon’s Australasian Risk Survey 2013/14:
Top 10 Risks to Australian and New Zealand Businesses
1. Regulatory & 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, Mr Lambros Lambrou, CEO of Aon Risk Solutions Australia, said that the elevation to number one of regulatory and legislative change, up from third place 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,” Mr Lambrou 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.”
In this environment, Mr Lambrou said it was more critical than ever for organisations to positively manage change, remain flexible and attuned to the evolving landscape: in particular, he added, 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,” said Mr Lambrou. “And not all such systems are created equal.”
Ranked second, for the second consecutive year, is concern about local economic conditions. Australian business sentiment continues to languish, fuelled in part by predictions of a slowdown in economic growth over the next decade. And it’s not just the local economy that has companies worried. Concern about global economic conditions came in at number six, further highlighting that local business clearly see the global marketplace as having a more significant impact on their business success.
Mr Lambrou said that the strong Australian dollar, challenging trading conditions and the high cost of employment in this country have all combined to force the withdrawal of a number of high-profile major manufacturers from Australia.
The fastest mover in the top ten this year, people risk, moved up eight positions, from outside the top ten, to third place in the Aon survey.
“There are a number of reasons for companies’ increased concern about people risk,” Mr Lambrou explained. “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.”
Other big movers this year were business and supply chain risk, which fell six places to number ten on the back of significantly fewer natural disasters than in previous years. Brand and image concerns fell to their lowest level in the 12 year history of the Survey, ranking at number five in 2014. Mr Lambrou said that this fall was more likely the result of intensified competing risk concerns, than a gauge as to the decreasing relevance to organisations of their brand and image.
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.
Mr Lambrou said that 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.”
Mr Lambrou concluded by citing recent research conducted by Aon and the Wharton School at the University of Pennsylvania.
“There is a clear and 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.”