Risk-readiness falls to 12-year-low as volatility takes hold

The provider of risk, health and retirement solutions’ survey asked 2,600 risk managers from 33 industries in small-, medium- and large-sized organisations in 60 countries how uncertainty, economic and global trade concerns are challenging their organisation’s ability to invest adequately in preparing for and protecting business continuity.This year, respondents to the biennial survey ranked economic slowdown as their top risk. Damage to reputation/brand was the second-highest concern. Accelerated rates of change in market factors stemming from increasingly protectionist international trade policies – including rising regulatory activity and geopolitical tension – jumped from 38 in the previous survey to number three in 2019. Concerns over failure to innovate and meet customers' needs also remain a top-ten challenge.From a global mobility perspective, talent attraction (11) is still a significant issue, despite falling four places on 2017 to make way for the rapidly-rising risk of accelerated changes in market factors (number three from 38 in 2017) – another major consideration for businesses working over international borders and their globally mobile people.

Aon's top business risks for 2019 (2017 in brackets) 

Source: Aon's Global Risk Management Survey

Economic slowdown/slow recovery	1	(2)
Damage to reputation/brand	2	(1)
Accelerated rates of change in market factors	3	(38)
Business interruption	4	(8)
Increasing competition	5	(3)
Cyber attack/data breach	6	(5)
Commodity price risk	7	(11)
Cash flow/liquidity risk	8	(12)
Failure to innovate/meet customer needs	9	(6)
Regulatory/ legislative changes	10	(4)
Failure to attract or retain top talent	11	(7)
Distribution or supply chain failure	12	(19)
Capital availability/credit risk	13	(21)
Disruptive technologies	14	(20)
Political risk/ uncertainties	15	(9)

Climate, demographic and digital changes rise up the rankings

Outside of the top 15 and looking to emerging risks, Aon’s survey sees the aging workforce rise from a ranking of 37 in 2017 to 20 in 2019. It is predicted to rise further to 13 by 2022.Aging populations, coupled with workforce shortages, have both the capacity to change the social and economic trajectory of a country and create volatility within organisations. This underscores the need for future-focused and risk-aware companies to pay specific attention to their HR and people strategies if they are to successfully manage volatility.Climate change also moved from a ranking of 45 in 2017 to 31 in 2019 as the frequency and severity of natural catastrophes contribute to rising concerns about the impact on the global economy. The risk of cyber-attacks and data breaches are also expected to jump to the third-highest overall risk in 2022. While cyber threats continue to hold the top spot among respondents from North America, much of the rest of the world is expected to catch up in the next three years.Meanwhile, disruptive technologies are a growing concern for survey respondents, rising from a ranking of 20 in 2017 to 14 in 2019 globally. This trend is cited as a top-10 risk for 50 per cent of all industry sectors.

How can companies best manage emerging and current risks?

Macro-economic risks, like more protectionist economic policies, political uncertainty and social change, when combined with the speed of technology change, are contributing to a growing prominence of new threats that can disrupt supply chains and overall business operations, says Aon.A third of the top-15 risks are new concerns, including accelerated rates of change in market factors and disruptive technologies. As a result, "companies of all sizes are struggling to prioritise their risk management efforts amid so much change and uncertainty," commented Rory Moloney, chief executive officer, Global Risk Consulting."What was once a tried-and-true strategy for risk mitigation – using the past to predict the future – is now a challenge and coupled with a more competitive global economy, it is causing an all-time low level of risk readiness. As a result, risk management plans need to take a different approach than they have in the past."

Managing uninsurable risks

Given many of the top risks, like economic slowdown and increasing competition, are uninsurable, risk managers are reporting their lowest level of risk readiness in 12 years. Aon is therefore advising risk managers to embrace risk management as opposed to risk transfer to mitigate threats and protect their organisations from volatility."The changes in this year's survey results indicate that the risk management function must evolve to reach the enterprise level," added Moloney. "This, combined with the use of data and predictive analytics that can generate actionable insights, will help businesses protect their bottom lines while adapting to accelerated change and economic fluctuations." 

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