Regulatory and legislative change is a growing concern for Australian and New Zealand businesses, with a new Aon survey revealing that it is the number one risk this year, compared to last year when it ranked at number three out of the top ten risks.
Deteriorating local economic conditions is the second most pressing concern for businesses, followed by the impact of people risk in third place, likely due to the cost of workers compensation and the harmonisation of work health and safety laws.
Top 10 Risks to Australian and New Zealand Businesses are as follows:
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, 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.
"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, 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 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.
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,” 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. 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.
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.”