SYDNEY (25 July 2013) - It seems that forewarned is far from forearmed for Australian organisations, which have ranked uncertainty due to regulatory change as one of their ‘top three’ risk concerns. And for the banking and finance sector, regulatory risk is the number one worry, ranking even higher than risks relating to the economy and brand and image.

“In a year where changing legislation has affected all sectors, it’s not unsurprising that many businesses are concerned that they’re not adequately prepared for change or are unsure about what its effects – intended and otherwise might be,” said Jason Disborough, Managing Director, Global for Aon Risk Solutions.  “Certainly in 2013 we’ve seen far greater apprehension about risks associated with regulation than in previous years.”

The risk rankings are drawn from Aon’s 2012/13 Australasian Risk Survey, the findings of which were released last month.

Mr Disborough cited change and uncertainty around the Carbon Tax, the Minerals Resource Rent Tax, Occupational Health and Safety (OHS) Harmonisation legislation as well as major amendments to the Privacy Act as likely to be causing some level of indecision.

However it is the banking and finance sector that’s really expressing concern about regulatory-based risk. In addition to the as-yet unknown effects of the new OHS and Carbon Tax regimes, the sector is likely to be more materially affected by privacy law amendments than many others. At the same time, it is grappling with major changes flowing from the Future of Financial Advice (FoFA) reforms and the advent of the new Stronger Super superannuation regime.

The fact that a potential change of government may see some – or all – of the new legislation either reversed or delayed, serves only to further muddy an already murky legislative landscape.

Given the level of concern, Mr Disborough said it came as a surprise to see that many organisations were not as prepared as they might otherwise be for the upcoming changes. He offered preparedness for the new superannuation regime as one example.

“As well as significantly affecting the industry itself, changes to superannuation touch on every employer and every working Australian,” he said. “However, according to the recent Aon Hewitt Superannuation Pulse Survey released earlier this year, some 58% of businesses had not decided how they would respond to the changes even beyond 1 July 2013 when the first of them came into effect.” 

Mr Disborough pointed out that, while it is the ‘unknowns’ that are among the biggest risk triggers, not having effective risk management systems in place exacerbates the situation.

“Not knowing what you intend to do in any given situation is a risk in itself,” he said.

However, companies are not being helped by the global climate of uncertainty.

“There’s something of a Catch 22 at work here,” he said. “The recent weakness in the global economy has caused companies to focus more than ever on minimising operating costs. Using effective risk mitigation and risk transfer techniques can help reduce costs. However uncertainty about the effect of legislation reduces companies’ ability to do this.”

By way of example, he cited changes to OHS legislation.

“Although the harmonised approach has been adopted in all states except Western Australia and Victoria, the full implications for directors, officers and operations in regard to a range of issues, including penalties and fines, are still unknown. It’s the unknowns that are key concerns for organisations trying to plan, resource and put systems to support compliance in place.”

Mr Disborough concluded by saying that while businesses are understandably concerned with the uncertainties, they can have more control than they may believe – if they take the right action. And, on a positive note, many companies are.

“We were heartened to see that most organisations continue to increase their investment in risk management and mitigation. There is a proven correlation between advanced risk maturity and the ability to add shareholder value, and companies need to understand this, especially in this climate” he said.

“Preparedness is key,” he said. “In fact it is the only way to face uncertainty head on.”

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Benefits of risk management – key findings from Aon’s Australasian Risk Survey 2012/13

• Improved shareholder value has become a more significant benefit of investing in risk management in 2012/13, with 58% of respondents identifying this as a key benefit, up from 47% in last year’s survey. In fact, there has been a continual upward trend in the importance of increasing shareholder value, with it rising 19% in the past five years.

• Those organisations with the highest Risk Maturity Rating exhibited stock price volatility 50% lower than the group of organisations with the lowest Risk Maturity Rating.

• The key external drivers behind strengthening risk management programs were Increased Focus from Regulators (47%) and Economic Volatility (40%).

• Taking a structured enterprise-wide approach to risk continues to rise at 57%, up 3% from last year’s survey.

• Boards of directors and risk committees are also becoming more involved in risk oversight and management processes, with 68% of respondents stating that their BoD or risk committee had formally established risk policies, and 23% stating that they had some partial or informal involvement.

About Aon Australasian Risk Survey 2012/13

Now in its 11^th year, the Australasian Risk Survey gives Australian and New Zealand organisations a snapshot of how their risk management practices measure up against their industry peers and competition.

The survey report reflects the responses of 133 unique Australian and New Zealand businesses across 19 industries surveyed between October and November 2012. The businesses include representatives from the public, private and not-for-profit sectors.

The Australasian survey was run in conjunction with the Aon Global Risk Survey, which was completed by 1400 organisations across 70 countries. Response rates from Australia and New Zealand were the highest globally.

Respondent organisations are placed in three broad revenue bands:  27% less than $100 million; 38% between $100 million to $1 billion; and 35% of respondents more than $1 billion.

Typical respondents were Chief Financial Officers (15%); Risk Manager or Insurance Manager (40%) and Chief Risk Officer (16%).  

About Aon

Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurancebrokerage, and human resources solutions and outsourcing services. Through its more than 65,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovativeand effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon andwww.aon.com/manchesterunited to learn about Aon’s global partnership and shirt sponsorship withManchester United.

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