Top risk concerns in Australia

In 2014, StrategicRISK conducted its first annual Asia-Pacific Benchmark Survey to gauge the opinions of Asia-Pacific corporate risk/insurance managers on the state of the profession and the risk management challenges facing companies in the region. The survey set out to provide comparative data and thought leadership material to assist risk/insurance managers to benchmark their role, internal risk function, salary and risk priorities with others in the profession. It formed part of StrategicRISK’s Asia Risk Report, an annual thought leadership study examining risk management best practice.

The fieldwork period ran from late September until mid-November 2014. During this time, a link to an online survey was emailed to the audience database of StrategicRISK. This comprised senior risk management professionals representing large national and multinational corporations based in Australia, China, Hong Kong, Indonesia, Malaysia, the Philippines and Singapore. StrategicRISK also worked with the Pan-Asia Risk & Insurance Management Association to encourage responses from their members.

The StrategicRISK Asia-Pacific benchmark study captured feedback from 169 Asia-Pacificbased corporate risk and insurance managers. Almost two-thirds of respondents worked in firms with a turnover above US$1bn. 

Top concerns in Australia
To identify the risks of greatest concern to Asia-Pacific risk managers, respondents were asked to rate 34 different risks by the likelihood of a risk event occurring in the next 12 months and the estimated financial impact this would have on their business. Responses from risk managers in Australia represented 15% of the total number of respondents. Four in every five Australian respondents worked for companies with a turnover in excess of US$1bn, operating in the agriculture, construction, energy, engineering, food, logistics, manufacturing, retail, telecommunications and utilities sectors.

Respondents were asked to rate likelihood and financial impact on a scale of 1-5 (1 being very low, 2 being low, 3 being medium, 4 being high and 5 being very high). To identify the top 10 risks of highest concern (that is, those most likely to occur with the highest financial impact), a combined average score was calculate for likelihood and financial impact for each risk. These were then ranked by size. The higher the score the more likely a risk was to occur and to have a high financial impact.

Figure 1 lists the top 10 risks of greatest concern to respondents in Australia. Figure 2 compares the individual average likelihood and financial impact scores of Australian-based risk managers to the average of all respondents.  

For most risks, the margin of difference in the likelihood and financial impact score is only small. This indicates a close alignment between Australian and Asia-based risk managers in their perception of risk. The more notable variances in opinion were connected with the risks associated with “failure to innovate” and “health and safety”, which Australian risk managers ranked first and second respectively.

Brad Tymmons, enterprise risk and insurance manager at EnergyAustralia, one of Australia’s largest energy generators and retailer, and president of the Australasia chapter of the Risk and Insurance Management Society, suggests the capital, resources and opportunities flowing to and from disrupters are driving a change in Australia’s developed economy, which in turn means companies need to innovate to stay competitive. Domestic competition is also a factor. As Tymmons points out, “international companies continue to invest in Australia, competing directly with domestic companies for market share.”

As Eamonn Cunningham, a director of the  Australasia chapter of the Risk and Insurance Management Society and chief risk officer of Scentre Group (owner of Westfield shopping centres in Australia and New Zealand) explains, innovation is a critical component of staying ahead of customers’ needs. “Companies need to be ahead of the curve in respect of what their current or potential customers will want in, say, six months or two years,” he says. “This is necessary to have a chance to expand. Failure to be ahead of the curve in this regard poses a major risk for corporates.”

Greater awareness among the workforce of employers’ occupational health and safety (OH&S) obligations, an increase in OH&S litigation and higher penalties for breaches are driving risk managers concerns around health and safety risk according to Mervyn Rea, senior risk engineer and head of risk engineering customer management, APAC, at Zurich. “The financial impact may be perceived to be higher owing to the higher costs of living in  Australia, which could trigger greater compensation payments, when compared to other areas of Asia,” says Rea. “Also, fines and penalties for breaches of OH&S are likely to be higher in Australia.”

Cunningham does not believe the underlying health and safety risk itself has increased, rather the perception among risk managers that the actual risk exists and is ever present has changed. “Clearly, the [health and safety]  legislation in Australia is playing a part,” says Cunningham. “In particular the fundamental shift in terms of where responsibility lies from the traditional employer/employee to that of persons conducting business undertakings.”

Foreign exchange risk
Those risks Australian risk managers ranked lower in terms of likelihood and financial impact included pandemic and foreign exchange risk. Rea says views on pandemic risks may be influenced  by the lack of major incidents occurring in Australia, as well as a perception that there are greater border security and quarantine controls in place on the isolated island continent.

“Some organisations in Australia may believe that a pandemic strike could be limited to one particular city or state, enabling business continuity/resilience in other states to continue operations,” Rea adds. The timing of the survey may have contributed to Australian risk managers’ lower perception of foreign exchange risk. The survey was conducted in a period (September to October 2014) when there was closer parity between the Australian dollar and the US dollar. The volatility and effect of a weaker Australian dollar (or a stronger US dollar) in the first two months of 2015 should make foreign exchange risk a much greater concern.