StrategicRISK roundtables see top risk professionals highlight major challenges faced by Australian businesses
The cream of Australia’s risk-management community met with the StrategicRISK team, local brokers and insurance industry representatives in separate events held Melbourne and Sydney recently.
These risk and insurance-management roundtables provided a forum for discussions that ranged far and wide across Australia’s risk landscape.
The event began with participants discussing various events that had impacted their organisations’ business operations over the past year, and how they managed and mitigated the associated risks.
Many described how their companies were undergoing major changes in the form of restructures, M&As, demergers and the hiring of new executive teams. It was pointed out that such activities created a host of opportunities as well as risks.
It was generally agreed that corporate risk managers had to keep a close eye on issues such as disclosure, compliance, the free flow of information to the board, and good quality due diligence to ensure that change was managed effectively.
One major challenge was identified as bringing together key people in different teams. While this was seen as a difficult exercise, it was nevertheless necessary to prevent overlaps of risk identification and to allow for better understanding of the true material risks faced by an organisation.
Talk then turned to specific risks, such as Australia’s rapidly changing regulatory environment and ageing infrastructure, as well as product recall issues and the danger of procurement teams locking in prices for commodities, thereby creating future competitiveness challenges.
The importance of key risk indicators in monitoring operational processes was covered, along with their usefulness in identifying potential business, legal, financial or other risks.
Concerns were also raised about a perceived increase in class actions from shareholders, in particular rogue behaviour backed by litigation partners and event-based class actions after events such as bushfires.
Uncertainty about world affairs and the global slowdown has clearly affected risk outlooks in Australia.
Indeed, uncertainty about the future was a pervasive theme of the roundtables, with a general consensus that two or three year plans were almost always redundant after less than 12 months. Not to mention that there was rarely any time left after taking care of day-to-day business needs to actually undertake truly long-term planning.
The agility, speed and focus of the board were also seen as of great importance, and this point led into a discussion about the value of scenario planning and how risk managers were incorporating this into risk processes.
It was suggested that there was increasing pressure coming from many boards for extensive scenario planning to provide more certainty on what’s required when events occur.
One example provided concerned Ebola planning, with one organisation deploying its ERM framework to deal with the crisis as soon as possible, then customising the framework as the issue developed. As one risk manager put it: “You must be nimble in your execution to avoid paralysis by analysis”.
Privacy and technology related risks are clearly big issues with Australian risk professionals, as they were raised repeatedly throughout both roundtable events.
There was much discussion about how companies were structuring their risk programmes to deal with the exponential increase in cyber risks, and how board-level risk management strategies, such as incident response and continuity training, were being employed.
The value of specialist external providers to extend a firm’s own internal technology risk management capabilities was hotly debated, with disclosure risks the sticking point. This led to talk of confidentiality breaches and the control of an organisation’s sensitive information.
It was pointed out that there are now so many opportunities to “connect the dots and have a single view of the customer” with increased consumer loyalty programmes and the like.
Furthermore, the amount of data that leaves any company is almost always vast, with some companies going so far as to restrict laptop use or render USB connections inoperable.
The discussion about cyber risk prompted an observation that when rolling out a large piece of infrastructure, concerns about cyber attacks were now high on the risk list.
Several big infrastructure projects are happening in Australian right now, with many more planned for the near future. So, roundtable participants were asked, where is all the necessary human capital coming from? Unsustainably high labour costs are clearly a huge risk for large corporates in this area.
Acquisition and retention of talent is one of the top two or three concerns for almost all corporates operating in the region, and Australia is no different.
Companies are experiencing more churn with their people; even senior executive staff turnover is high, making it harder to mitigate legacy risks due to low corporate memory retention.
One theory was put forward that some HR departments were beginning to become quite homogenous in terms of their internal culture, and that this could lead to a lack of diversity in hires.
It’s what one participant called the “colour me grey” effect, in which a team made up of similar people is hired by an HR team made up of similar people. This could result in a possible loss of complexity in an organisation’s mix of people, it was suggested.
In the long run, this could mean fewer employees with “creative flair and effervescence, and the ability to think outside the box”, creating future risks such as lack of innovation and organisational stagnation.
There’s a belief that many young graduates want “to move up quickly or they’ll move out”, and therefore it’s difficult for organisations to align their business needs with many young employees’ appetite for length of stay.
The need for some form of recognised qualification for risk managers was also discussed, although many at the events had no formal risk management qualification themselves. It was suggested that life experience was the key here.
Nevertheless, relevant qualifications were seen as essential for young people entering the workforce to enable them to “knock on the boardroom door”.
While accreditation is on the agenda, it was suggested that being able to mentor others to help them manage their department’s risks was of utmost importance.
Talk eventually turned to the risks involved in the insurance market continuing to operate as it is, with falling prices creating an unsustainable environment for insurance companies.
It was suggested that the industry faced its most challenging conditions since 2001, with a difficult economic environment making buyers more price sensitive, and pressuring brokers and suppliers to reduce costs.
For the first time in many years, long-term relationships between firms and insurers were being challenged, it was suggested, resulting in smaller margins in an already overserviced market.
Oversupply of capacity and insurance/broker convergence were mentioned as big challenges, with brokers and insurers looking for different ways to show their value propositions.
When asked to nominate future risks, risk professionals nominated such diverse issues as national security, automation, sustainability of practices and ethical sourcing, and bribery and corruption in emerging markets being targeted by Australian firms.
For more on Australia’s risk landscape, keep an eye out for the full StrategicRISK 2014 Australia Risk Report, which is sponsored by Zurich and supported by the Pan-Asia Risk & Insurance Management Association (PARIMA).
All StrategicRISK’s Asia-Pacific country reports are available here.