Financial and human capital constraints have seen a marked decline in local business risk readiness and risk maturity, a mirror reflection of the results of the 2013 Aon Global Risk Management Survey conducted among 1400 of the world’s largest organisations across diverse industry sectors.
According to the global survey, risk maturity and readiness has taken a worrying dip, with reported readiness for the top 10 risks dropping by a material 7% (from 66 to 59%) from the 2011 survey and reported loss of income increased by 14%.
Economic slowdown/slow recovery, regulatory/legislative changes and increasing competition are not surprisingly the top three risks faced by businesses in 2013 to 2016, damage to reputation/brand shot up into fourth most concerning risk, while political risk/uncertainties broke into the top 10 risks for the first time in 2013. But underrated risks such as computer crimes/cyber hacking, loss of intellectual property and data, counter party credit risk and risks emanating out of social media have been highlighted as needing more focus according to the survey.
"Prolonged economic recovery has strained financial and human capital resources, thus hampering the abilities to mitigate many of these risks and is one of the reasons for the decline in risk readiness," says Anton Roux, CEO of Aon South Africa.
"However, locally, we’re also seeing that many businesses have adopted a more laissez-faire approach to their risk management, believing that South Africa is better insulated from many of the risks facing global players. But the reality is that in today’s globally interdependent environment, risks are no longer isolated by industry or geography. Secondly, the growing risks in our own backyards are growing in frequency, complexity and voracity. This is not the time to be holding on to the “we’ve-done-ok-so-far” approach,” says Roux.
If ever there was a trend indicator for 2013 and beyond, it would be that volatility is here to stay. Ongoing labour action and disputes, political upheaval, reputational crises across both corporate and government sectors, market and currency volatility, flagging investor confidence, growing regulatory pressures, power shortages and extended outages, the postal strike, failing infrastructure, serious levels of consumer indebtedness, hefty increases in operating costs and a dire shortage of institutional management capability are all culminating to take their toll on businesses, and on consumer confidence. Volatility is something that South Africa will face for at least a couple of years and businesses will need to find solutions to working within such an environment.
“A worrying trend is that elective expenditure on risk readiness is on the decline as companies continue to defer spend on risk mitigation. The danger is that deferring spend makes risk readiness less of a priority. A lack of preparedness for the range of threats and risks that clients may face and the repercussions of failing to prepare appropriately for these are not being given the board oversight it requires, until its possibly too late,” warns Anton.
While Aon’s 2013 Global Risk Management Survey enjoyed a 47% increase in the number of respondents compared with its 2011 survey, indicating that companies continue to have a higher level of attentiveness to risk management, the declining elective spend could indicate that many organisations could face significant levels of under-insurance, and thus losses, should the worst happen. “An example of this is demonstrated in local businesses that rely on imported machinery and equipment – with the currency fluctuations and inflation, replacing any equipment would cost around 25% more than it did two years ago. Unless their risk planning has taken this into account each year, the business could face crippling losses in a claims situation. Recent high profile brand sponsorships that have gone sour and caused untold reputational damage to the sponsors is another prime, but often overlooked example.
“We are finding that risk leaders are struggling to identify, manage and understand the risks facing their organisations, since many potential repercussions are often overlooked as they often arise out of complex interdependencies which may not be immediately visible. The importance of no longer evaluating risk in isolation but considering the relationship between risks - and the domino effects of such on seemingly unrelated areas of the business - to establish a successful risk management program cannot be emphasized enough. Often events that have a low probability of happening, but that can wreak irreparable damage on an organisation, are being overlooked as too unlikely to happen,” he says.
The good news is that these risks can be mitigated by building overall resilience and ensuring that the business has plans and procedures in place to reduce risks to levels that are as low as are reasonably practicable. It is vital that business leadership sees the increasing linkages between the various special risks; integrate their plans across the broad spectrum of possible risks; engage risk solutions experts to quantify the changing risk landscape and provide appropriate covers.
“Threats provide opportunities for growth in that the best-prepared companies will be the ones that better manage their vulnerabilities and thus can withstand a greater range of threats; that can recover more quickly and can return to commercial activities sooner than their competitors. One way of achieving this is by reviewing and strengthening their specialist insurance cover under the guidance and advice of a professional risk advisor. While it is difficult to predict which risk will emerge and demand attention, we can be certain that successful companies will not be the ones that adopt a ‘wait and see’ approach. Instead they will be the ones that prepare themselves thoroughly to anticipate future needs and undertake the difficult process of finding solutions to address them. They will not just fix what is broken, but view their new circumstances as a portal to the next generation of business opportunity,” concludes Anton.
To register for a copy of the Aon Global Risk Management Survey report as well as participate in the 2016 survey, visit www.aon.com.2013GlobalRisk.