Risk readiness among organizations declined last year, global survey says

Organizations worldwide are showing a decline in risk readiness, with only three industries showing the same or an improved level of preparedness for major risks, suggests a new study from Aon Risk Solutions.

On average, readiness for the top 10 risks declined from 66% in 2011 to 59% in 2012, according to the 2013 Aon Global Risk Management Survey. Reported loss of income related to the top 10 risks increased 14%, the report says.

The top 10 risks (out of 50) globally, include:

1. Economic slowdown/slow recovery
2. Regulatory/legislative changes
3. Increasing competition
4. Damage to reputation/brand
5. Failure to attract or retain top talent
6. Failure to innovate/meet customer needs
7. Business interruption
8. Commodity price risk
9. Cash flow/liquidity risk
10. Political risk/uncertainties

The top three risks globally are also the top three in 24 or the 28 industries identified in the report.

Of 28 industries included in the report, three reported the same or improved level of readiness – the pharmaceutical and biotechnology industry, non-aviation transportation manufacturing and agribusiness.

“One possible explanation of the decline in risk readiness could be that the prolonged economic recovery has strained organizations’ resources, thus hampering the abilities to mitigate many of these risks,” Stephen Cross, chairman of Aon Global Risk Consulting noted in a statement on the findings.

“Our survey revealed that, despite diverse geographies, companies across the globe shared surprisingly similar views on the risks we are facing today – whether or not they feel prepared,” he added.

The top three risks in the report are unsurprising, and unlikely to change their ranking from now until 2013, according to the survey results.

Looking ahead, economic conditions continue to be the top risk, while political risk is projected to reach the No. 6 spot by 2016, the report suggests. Weather and natural disasters will also break into the top 10.

However, business interruption is projected to drop out of the top 10, which “could be partly due to the insurability of many aspects of this risk and the improved business recovery planning,” the report says.

There are still some risks that Aon says are underestimated, including computer crimes and social media. While such cyber risks (hacking, viruses, malicious codes) are ranked as a No. 8 risk in North America, the same risk is ranked much lower in the other regions, the report says.

Staffing levels in risk management departments is stable, with most organizations maintaining fewer than five employees in that area, the report notes, adding that 28% of respondents report having a chief risk officer, more common among those in the more heavily regulated industries.

On a more positive note, risk management continues to be a strong focus of boards of directors, among organizations of all sizes, the report says.

The survey, which was based on results from 1,415 organizations from 70 countries in all regions of the world, was conducted in 10 languages in the fourth quarter of 2012. The full report in available on the Aon Risk website.