global risk management survey 2011

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Aon Risk Solutions

Risk. Reinsurance. Human Resources.

Global Risk Management Survey

2011


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Copyright 2011 Aon Corporation.


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Introduction 4

Foreword 6

ExecutiveSummary 10

RespondentProfle 12

Top10Risks 18

Risk readiness for the Top 10 Risks 42

Losses associated with the Top 10 Risks 45

Identiying,Assessing,MeasuringandManagingRisk 50

Measuring TCOR 51

Identifying and assessing major risks 52

Determining limits of insurance 55

Benets of investing in risk management 57

External drivers for risk management 58

Aons Risk Maturity Index 59

BoardOversightandInvolvement 60

Policies on risk oversight and management 61

Approach to risk management at the board level 64

RiskManagementDepartmentandFunction 66

Chief risk ocer 67

Who is handling risk?

Where does risk management report?

The size of risk management department 73

Claims and safety / risk control roles 74

Third-party service providers 76

InsuranceMarkets 78

Priorities in choice of insurer 79

Desired changes in the insurance market 80

RiskFinancing 82

Changes in premium rates 83

Limits 84

Satisfaction with limit levels 86

Changes in retention level 88

Changes in coverage 89

GlobalPrograms 90

Global insurance purchasing habits 91

Global insurance buying patterns 92

Types of global insurance coverage purchased 93

Captives 94

Organizations that use captives 95

Key risks underwritten 97

Methodology 99

AonataGlance 100

KeyContacts 101


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Global Risk Management Survey Aon Risk Solutions

We are pleased to present the results of the Aon Global Risk Management Survey,

a revealing data-driven study designated to help businesses see a fuller picture of todays risks

and risk management strategies.

Conducted in Q, , the Aon Global Risk Management Survey has generated nearly ,

responses from companies around the globe. The results are enlightening. For example, as the

worlds economy shows signs of recovery from the nancial crisis, the threat of economic slowdown

still weighs heavily on organizations that have responded to the survey. If the economy continues

to improve and businesses grow steadily, organizations will have to plan accordingly to manage

changing risk proles and capture new opportunities brought about by an economic recovery.

The ndings from this survey allow organizations to benchmark their risk management and risk

nancing practices and help them identify approaches that may improve the eectiveness of their

own risk management strategies.

As the worlds leading risk advisor and insurance broker, Aon is committed to using our unmatched

global network and insights to provide businesses with industry-leading solutions.

If you have any comments or questions about the survey, or wish to discuss the ndings further,

please contact your Aon account manager or visit aon.com/globalrisksurvey

Best regards,

SteveMcGill

Chairman and CEO

Aon Risk Solutions

Introduction


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Foreword

Aon is pleased to share with you the ndings of our Global Risk Management Survey. As you read

through the multitude of interesting risk management facts and gures gleaned from nearly ,

respondents, it is helpful to think about the events of the last few years that have inuenced, or not

inuenced, the way organizations responded.

For starters, consider the events that have occurred since the survey was conducted in Q, .

On February , , New Zealand was struck by its second major earthquake in ve months, which

caused more damage than an even stronger September quake, including fatalities. Eighteen days

later on March , Japan was devastated by a . magnitude earthquake and the tsunami that followed.

April brought tornadoes to the central and southern regions of the US on a scale unseen in decades,

followed by massive ooding. In addition to these natural disasters, the risk events of the last two quarters

have included the Middle East uprisings, a second major automobile recall, the WikiLeaks incident and

the capture and death of Osama bin Laden. If these events had been current at the time of the survey,

we expect that certain risks such as distribution or supply chain failure, business interruption, political risk, damage

to reputation and terrorism may have been rated higher on the list of top risks impacting organizations.

Now, think about the events the world has witnessed between this survey and our prior survey conducted

in Q , several ongoing and increasing in intensity:

HN (Swine) u

Iceland volcano

Explosion and oil spill in the Gulf

Queensland Australia oods

Piracy

Social media explosion, including social

media sites, ebooks, smart phones and tablets

Ongoing global recession

Ponzi schemes

Unemployment and restructuring

Government bailouts: Too Big to Fail

Financial crises in Ireland, Greece,

Portugal and Spain

Pension devaluation

European and U.S. foreign exchange movements


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As you review the list of the top risks aecting organizations and compare the rankings between

and , it is no surprise that these events have had an inuence on how organizations view risk and

prioritize their resources to respond. The economic slowdown has maintained the top rank in our survey

and the fallout of the credit crisis rst identied in mid- continues to impact organizations around theworld. Technological advances are posing challenges to organizations as they struggle to maintain the IT

infrastructures necessary to support their business models, remain innovative and competitive in their

industries, and adapt to the inltration of social media.

The study ndings highlight the interdependency between the impact of the economy and various

additional key risks. Throughout the economic recession, many organizations pulled in their oars, tabling

research and development projects, decreasing spend on information technology and freezing hiring.

Today, business leaders are realizing this strategy wont work in the long term. Showing up on the top

list this year are failure to innovate/meet customer needs, technology/system failure and failure to attract or retain

top talent. Organizations must begin reinvesting in fundamental areas such as these if they are to survive

and thrive.

This years survey also highlights that the ability to embrace and leverage technology is emerging as a

dominant factor underlying many of the key risks facing organizations. The failure to innovate/meet customer

needs and the risk oftechnology/system failure entered the top list for the rst time. With the heavy reliance

on their technological infrastructure, businesses are becoming more vulnerable to system failures, data

breaches and social media exposure, causing business interruptions, loss of customers and damage to

reputation. This risk will only continue to grow as businesses are investing more heavily in technology and

the use of technology as part of the global infrastructure continually advances.

Of equal interest when reviewing the survey results are the events that didnt happen in the past two years:

No major terrorist events on the scale of /

Mild hurricane season

Prolonged soft commercial insurance market for traditionally insurable risk

With terrorism largely o the radar screen in the past two years, organizations have collectively lowered

the priority ranking of this risk to . It is shocking to believe that after only a decade organizations

have dramatically lowered the priority of one of the most impactful risk events in recent world history.

The prolonged soft insurance market combined with limited resources due to economic conditions

has impacted the focus companies are giving to measuring total cost of risk. Less than percent of

respondents measure their total cost of risk, which is down from percent in .

Global respondents should nd the regional comparisons enlightening, as they provide insights into the

maturity level of risk management processes by geography. In Latin America, crime/theft/fraud/employee

dishonesty is tied for # on the list, yet not included in the top risks at all in other geographies. Asia

Pacic is challenged to attract or retain top talent, ranking this risk as #, as they compete with international

companies located in more cosmopolitan global cities like New York, London or Washington D.C. to retain

their best and brightest talent.


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Particular insights can be drawn from the reported readiness for each of the top risks identied.

Despite the signicant impact of the credit crisis on organizations, a factor underlying the # rank for the

economic slowdown and the # rank for cash ow/liquidity risk, percent of respondents (the highest

of any top ) felt ready to deal with this risk. The reality is that organizations had to manage this risk in order

to survive: Credit lines are life lines for growing organizations and all resources were exhausted to restore

liquidity to ensure long term viability. On the low end of readiness is the failure to attract or retain top talent,

dropping to percent from percent in . Despite the concern about employee retention, most

organizations beneted from a non-mobile workforce during the peak of the recession as employees hunkered

down, happy to have any job at all. Now that the unemployment rate is start ing to decrease and companies

are recording prots and beginning to hire again, the need to be ready for this risk is elevated and many

organizations will be challenged if they do not engage employees.

What is not in the main body of the report, but shown at the end of this foreword for your benet, is the list

of all risks and their respective rankings. This list, when considered in the context of the multiple years of Aon

survey results, demonstrates that until a risk is having a direct impact on an organization, it is not considered

a key risk. Low on the priority ranking this year are counter party credit risk (), pandemic risk (), climate

change () and terrorism (). Out of sightout of mind appears to be the mentality here. It is important

for organizations to assess the likelihood and potential impact of all viable risk events in order to be

prepared for the next black swan before it strikes. Failure to do so could have catastrophic consequences.

We hope you nd the results of this survey insightful and useful to your risk management planning. As you

reect on the inferences and how it may help your organization, we invite you to take the Aon Risk Maturity

Index. The Aon Risk Maturity Index, developed in par tnership with The Wharton School of the University

of Pennsylvania, is the rst-of-its-kind tool for leaders in nance and risk management to assess their

organizations risk management capabilities and receive immediate feedback in a Risk Maturity Rating with

comments for improvement. In addition to immediate feedback, all companies who participate in the Index

will be provided with a summary report on Aons global ndings later this year. For more information,

contact us at [email protected]

Best regards,

StephenCross

Chairman

Aon Centre for Innovation

and Analytics

[email protected]


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GlobalRiskManagementSurveyRiskRanking

Riskrank Riskdescription

1 Economic slowdown

2 Regulator y/legislative changes

3 Increasing competition

4 Damage to reputation/brand

5 Business interruption6 Failure to innovate/meet customer needs

7 Failure to attrac t or retain top talent

8 Commodity price risk

9 Technology failure/system failure

10 Cash ow/liquidity risk

11 Capital availability/credit risk

12 Distr ibut ion or supply chain failure

13 Third party liability

14 Political r isk/uncertainties

15 Exchange rate uctuation

16 Weather/natural disasters

17 Injury to workers18 Computer crime/hacking/viruses/malicious codes

19 Merger/acquisition/restructuring

20 Failure of disaster recovery plan/business continuity plan

21 Physical damage

22 Inadequate succession planning

23 Failure to implement or communicate strategy

24 Lack of technology infrastructure to support business needs

25 Crime/theft/fraud/employee dishonesty

26 Environmental risk

27 Professional indemnity/errors and omissions liability

28 Loss of intellectual property/data

29 Interest rate uctuation

30 Growing burden of corporate governance

31 Workforce shortage

32 Counter party credit risk

33 Globalization/emerging markets

34 Product recall

35 Corporate social responsibility/sustainability

36 Pandemic risk/health crises

37 Asset value volatility

38 Directors and ocers personal liabi li ty

39 Understang

40 Natural resource scarcity/availability of raw materials

41 Share price volatility

42 Unethical behavior

43 Pension scheme funding

44 Climate change

45 Terrorism/sabotage

46 Outsourcing

47 Harassment/discrimination

48 Kidnap and ransom/extor tion

49 Absenteeism


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Executive Summary

Aons Global R isk Management Survey was conducted in

languages in Q, , encompassing companies from

countries in all regions of the world. The third of its kind since

, this online biennial sur vey aims to help companies s tay

abreast of emerging issues and learn what their peers are doing

to manage risks and capture opportunities.

This survey, similar to prior years, covers the following topics:

Top risk concerns facing companies today

How companies identify and assess risk

Approach to risk management and board involvement Risk management functions

Insurance markets

Risk nancing

Global programs

Captives

Top Risks

Even as economies show signs of recovery from the global

nancial crisis, respondents still see economic slowdown as the

top risk. For the rst time, two new risks enter the top list:

failure to innovate/meet customer needs and technology failure/

system failure.

The highest percentage for risk readiness ( percent) is cited

for cash ow/liquidity risk, up from percent in the prior survey.

Respondents feel least ready for failure to attract or retain top

talent percent cite this risk, down from percent.

Toprisks

. Economic slowdown

. Regulatory/legislative changes

. Increasing competition

. Damage to reputation/brand

. Business interruption

. Failure to innovate/meet customer needs

. Failure to attract or retain top talent

. Commodity price risk

. Technology failure/system failure

. Cash ow/liquidity risk

Identiying, assessing,measuring and managing riskIn the post-recession period, companies are facing increasing

pressure from stakeholders to better understand the risks that

organizations are facing, optimize insurance programs and lowerTotal Cost of Risk, or TCOR. This is evident in the survey,

where percent of respondents consider lowering TCOR as one

of the top benets of investing in risk management. However,

less than percent report having tracked and managed all

components of their TCOR, down from percent in .

It is dicult to manage what is not measured. We believe failure

to manage all aspects of TCOR could be detrimental to an

organization in the long run.

Among reasons cited for not measuring any TCOR elements,

percent of respondents mention lack of resources/expertise,

percent cite lack of data/information and percent say

they do not nd the process valuable.

Senior managements intuition and experience remains the

primary method used by survey respondents to identify and assess

major risks facing their organizations, followed by business unit

risk registers or key risk indicator worksheets and structured

enterprise-wide approach.


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Board oversight and involvement

As is consistent with the prior two surveys, risk remains rmly on

the boards agenda. Three out of four companies say in the

survey that the board or a board committee has established or

partially established policies on risk oversight and management.

Risk managementdepartment and unction

Despite the economic slowdown, the levels of risk management

department stang appear, on an aggregate level, to have

remained stable. The Chief Risk Ocers role is growing

percent of respondents say they have a CRO. Companies

in more regulated industries are more likely to have a CRO.

Seventy percent of the respondents indicate that they havea formal risk management department. Among those,

percent say their risk management department reports

to the CFO/nance/treasury. In the case where no formal risk

management department exists, percent say their CFO

handles risk management.

Insurance marketsThe message has been consistent and clear. For the third

straight time, nancial stability is cited as the top criterion in an

organizations choice of insurers, illustrating the fact that concerns

for competitive pricing is still tempered by an interest in dealing

with carriers who have the nancial capacity to pay claims. Promptsettlement of large claims sees the greatest increase in priority

among all the surveyed factors, from number nine in

to number ve. This could be driven by the higher than normal

natural catastrophe losses that occurred in , in regions

outside North America.

Risk fnancing

Commercial insurance has been in a soft pricing market since

and every year the expectation for a harder pricing environment

increases. The survey shows no indication of its arrival yet.

Flat to single-digit rate change appears to be the norm among

respondents. The majority of the organizations surveyed arecomfortable with their current limits purchased, and maintain

their current deductible/retention levels. Coverage terms and

conditions remain stable and in some cases, have broadened.

Global programs

When asked how companies operating in more than one country

purchase/control their insurance programs, percent say they

have a centralized operating structure, where corporate

headquarters control procurement of all of their global and local

insurance programs, while percent say their corporate

headquarters control some lines and leave local oces to purchase

other lines. Among the global policies that organizations have

purchased, the most common types are general liability including

public/product liability, as well as property damage/business

interruption. Only three percent of surveyed companies allow

each operation to buy their own insurance with no coordination

from corporate headquarters.

CaptivesAs an integral part of the organizations risk management

program, captive insurance companies or captives continue to

be used by organizations in virtually all industry groups and

geographic regions. Twenty-six percent of survey respondents

report having an active captive or Protected Cell Company (PCC).

However, during the economic downturn, there were greater

activities surrounding and interest in exit strategies. In the current

survey, eight percent of respondents indicate an interest in closing

their captive vehicle and six percent consider their captive vehicle

to be dormant or in run-o. Over the next few years, while we are

not expecting prolic growth in new captive formations on a

global scale, we anticipate the vast majority of owners will remain

committed to their captive strategy.

ConclusionAs the world is slowly recovering from the recession, conditions

remain challenging for many and risk retains a high position

on every organizations agenda. While it is hard to predict which

risk might emerge and demand our immediate attention, we

can be certain that successful companies will not be the ones

taking a wait and see approach. Instead, they will be the ones

who prepare themselves thoroughly to anticipate future needs

and undertake the dicult process of nding solutions to

address them. They will not just x what is broken, but view

their new circumstances as a por tal to the next generation ofbusiness opportunity.


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Respondent Profle

The number o respondents has nearly doubled in the survey, rom 55 to 96


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Aons Global Risk Management Survey, a Web-based biennial

research report, was conducted in Q, in languages.

The number of respondents has nearly doubled, from

in the last survey to , representing a broader range of

industry sectors and encompassing countries from all regions

of the world.

About percent of the par ticipants are privately-owned

companies and percent public-owned organizations.

The rest are primarily government or not-for-prot entities.

The wide geographical reach and broad coverage of industry

sectors have enabled us to provide a global and balanced

overview of the risk challenges facing organizations today.

The robust representation across many industry groups has

also provided the data to support the fact that many risksare common to all industries.

Footnote: Restaurants included in Hotels and Hospitality; Beverages included inFood Processing and Distribution; Textiles included in Consumer Goods Manufacturing

Agribusiness %

Aviation %

Banks %

Chemicals %

Consumer Goods Manufacturing %

Construction %

Educational and Nonprots %

Food Processing and Distribution %

Government %

Health Care %

Hotels and Hospitality %

Insurance, Investment and Finance %

Lumber, Furniture, Paper and Packaging %

Machinery and Equipment Manufacturers %

Metal Milling and Manufacturing %

Natural Resources (Oil, Gas and Mining) %

Non-Aviation Transportation Manufacturing %

Non-Aviation Transportation Services %

Pharmaceuticals and Biotechnology %

Printing and Publishing %

Professional and Personal Services %

Real Estate %

Retail Trade %

Rubber, Plastics, Stone and Cement %

Technology %

Telecommunications and Broadcasting %

Utilities %

Wholesale Trade

Surveyrespondentsbyindustry

Industry Percent Industry Percent


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Respondent Prole

< 1B

5B9.9B

15B24.9B

25B+

Survey respondents by revenue (in USD)

50%

27%

4%

5%

8%

3% 3%

1B4.9B

Cannot disclose

10B14.9B

North America

Europe

Asia Pacific

Latin America

Middle East & Africa

Survey respondents by region

60%

29%

7%

2% 2%


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0249

250499

5002,499

2,5004,999

5,00014,999

15,00049,999

50,000+

Survey respondents by number of employees

16%

9%

22%

14%

17%

16%

7%

The Americas

Europe

Asia

Australasia

Africa

Survey respondents revenue by area

59%

28%

9%

2% 2%


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Respondent Prole

1

25

610

1115

1625

2650

51+

Survey respondents by number of countries in which they operate

41%

21%

7%

5%

6%

10% 9%

Each category has a minimum of respondents.

Surveyrespondentsbyrole

Role Percentage

Chief Executive/President %

Chief Financial Ocer/Treasurer %

Chief Operating Ocer/Chief Administrative Ocer %

Chief Risk Ocer %

Chief Counsel/Head of Legal/Company Secretary %

Head of HR %

Risk Manager %

Risk Consultant %

Other %


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Survey ResultsBy Numbers

$87,285,34,74 Total Limit purchased for Umbrella/Excess Liability

$43,439,47,428 Total Limit purchased for Directors and Ocers Liability

$,25,, Maximum limit purchased for Umbrella/Excess Liability

$7,, Maximum limit purchased for Directors & Ocers Liability

$38,989,396 Average limit purchased for Umbrella/Excess Liability

$7,95,698 Average limit purchased for Umbrella/Excess Liability

$,, Minimum limit purchased for Umbrella/Excess Liability

$5, Minimum limit purchased for Directors & Ocers Liability

9,566 Number of risk prioritization decisions for top ten risks

96 Companies participated in the survey

667 Companies with risk management department

575 North American companies participated in the survey

437 Companies with more than USD 1B in revenue

42 Private companies participated in the survey

387 Public companies participated in the survey

279 European companies participated in the survey

22 Companies with 15,000+ employees

3 Financial industry companies

89 Companies with operations in more than 50 countries

62 Construction companies participated in the survey3 German companies

2 Priority ranking of pricing in choice of insurer

Ranking of economic slowdown on top ten risk list

89% Average percentage of companies maintaining retention level

69% Average reported readiness for the top ten risks

63% Companies that want to see broader coverage/better terms and conditions

59% Companies in more than one country that control procurement of all insurance centrally

45% Companies USD 25+ revenue with 611 employees in Risk Management Department

39% Companies measuring Total Cost of Insurable Risk

3% Companies with a Chief Risk Ocer

28% Average loss of income experienced from top ten risk in the last 12 months

4% Latin American companies with a captive

9% Asia Pacic companies that indicated more restricted property cover at renewal

5% Middle East & African companies indicating initial/lacking based on Aon ERM Maturity Model


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For two consecutive surveys, respondents rateeconomic slowdown as the top risk acing theirorganizations today. Failure to innovate/meetcustomer needs and technology ailure/systemailure have entered the top list or the frst

time. The highest percentage or risk readinessis cited or cash ow/liquidity risk (77 percent).Respondents eel least ready or ailure to attractor retain top talent with 6 percent citing this risk.

Top Risks


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Economic slowdown

Cash ow/liquidity risk

Regulatory/legislative changes

Increased competition

Damage to reputation and brand

Business interruption

Failure to innovate/meet customer needs

Failure to attract or retain top talent

Commodity price risk

Technology ailure/system ailure

1

10

2


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Economic slowdown

While the economic crisis has abated in most parts of

the world, organizations are still concerned about a

double-dip recession. Fueling this concern are continued

high unemployment rates and unease over the debt

sustainability of many of the largest economies

supported by monetary and scal policies that cannot

be maintained into perpetuity.

As the economic situation continues to improve, we

anticipate that concerns for this risk may gradually recede

in the next two years. According to recent estimates,

only two out of the worlds top countries are

predicted by consensus analysts on Bloomberg to

experience negative GDP growth in . This compares

very favorably to when countries suered

negative growth.

Highlights

# risk in out of the surveyed industries

# risk across all geographies

Risk that has led to the greatest reported

income loss last year

# risk reported by CEO/President

Top Risks

1 10


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Top Risks


Risks related to regulatory and legislative changes involve

the inability of an organization to comply with current,

changing or new regulations. Failure in compliance can

result in severe consequences, including direct penalties

in the short term and the loss of markets, reputation and

customers in the long term.

In the past, regulatory and legislative changes normally

took shape in a gradual process, allowing companies

some time to formulate responses or coping strategies.

This is not always the case now. The regulatory changes

in the United States following the credit crunch in

has demonstrated the fast speed at which important

regulation with far-reaching impacts can be enacted.

In addition, regulatory changes, even small ones, can

add tremendous cost to corporations. For example, the

insurance industry in Europe planned to spend at least

EUR billion in compliance with a new capital directive(Solvency II) which is to become eective by the end of

. In a related Accenture survey, percent of the

respondents said they would spend more than what had

been initially budgeted in preparing changes to meet

the requirements of this new regulation.

Highlights

Ranked , or by out of the surveyed industries

# risk reported by CEO/President and CFO/Treasurer,

suggesting that these positions may view it more as a cost

than risk

Banks have reported the greatest losses related to

this risk last year

2 10


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Top Risks

Increased competition

Many variables can impact the competitive position of

an organization in a certain industry sectoreconomic

trends, regulatory changes, entry of new competitors,

changes in consumer trends, advancements in

technology, use of lower-cost resources from developing

economies and aggressive strategies by competitors.

In this rapidly changing marketplace, failure toadequately address these and other market changes

could lead to irreversible loss of market share.

Highlights

# risk for Latin America

# risk reported by CEO, CFO and Chief Legal Counsel

# risk for the wholesale trade industry

More than percent of respondents in the constructionand telecommunications and broadcasting industries

have reported losses last year due to increased competition

10


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Damage toreputation and brand

Corporate reputation is one of the most important

corporate assets and also one of the most dicult to

protect. The recent nancial crisis and several high-

proled industrial accidents and recalls have made

organizations realize the urgency of protecting their

reputation, which can take years to build but can be

destroyed overnight. Nowadays, complex global supplychains and an Internet-spawned -hour news cycle

fueled by social media have posed additional challenges

for companies to manage risks related to their reputation

and brand. While some consider damage to reputation

a risk in its own right, others may consider it as a

consequence of other risks; either way, it is clear that all

risks may impact or be impacted by damage to reputation.

Highlights

# risk in food processing and distribution industry;

this could be driven by the proximity of its products

to end users, stringent regulatory oversight and

heightened public scrutiny

# risk cited by companies in the United Kingdom

Ranking increases when number of employees increases;

bigger is more risky

Top Risks

10


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Business interruption refers to an anticipated or

unanticipated disruption of an organizations normal

operations. Losses can arise from many sources,

some manmade, others natural. The factors that

contribute to business interruption are often sudden

and can change rapidly, making it a challenging risk

to understand and manage. Some of these exposurescan be insured while others can only be mitigated.

As companies expand overseas or components are

acquired abroad, the interdependence of global business

partners as well as outsourcing and oshoring, have

increased their international exposures, which are more

volatile and complicated. The recent events in Japan

provide a clear example of this and further reinforce

the importance of having risk mitigation strategies for

business interruption exposure.

Highlights

Down from # in and # in

# risk for pharmaceutical and biotechnology industries

which could feel more vulnerable to disruptive events at their

manufacturing or suppliers facilities; the highly specialized

equipment and settings are not easily replaced in the event ofa loss; rebuilding or restarting the operations may be subject

to strict regulatory approval

Nearly in respondents have a plan for or have undertaken

formal review of this risk

percent indicate income loss due to this risk in the months

Top Risks

10


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Failure to innovate/meet customer needs has, for the

rst time, entered the top risk rank since the start of

this survey in . Innovation plays a vital role in the

development of new business concepts, processes and

products. Innovation drives growth and opportunity

in new markets and breathes life into a mature industry.

In the tough battle to win the hearts and minds ofcustomers, who demand newer, better and faster

delivery of services and products, innovation is a

prerequisite for success, even for survival. Companies

can rapidly lose market shares if they fail to invest in

innovation. Competitive strategies should not only be

based on conditions of the current market but also

on where the industry is heading. The tried and true

business model, which proved successful in the past,

can no longer be the only model to meet customer

needs. More than ever, innovation, speed, and exibility

are essential to competing in the global economy.

According to the World Intellectual Property

Organization, the number of applications for global

patents rose percent in , from , in ,

when the economic crisis had induced a signicant

drop. WIPO expects the number to grow steadily in the

next two years. As businesses are gradually expanding,

innovation will become a leading industry dierentiator.

Highlights

Jumped to #, from # in

Ranked # or # by respondents in the machinery and

equipment, non-aviation transportation, printing and publishing

and technology industries

percent have a plan for or have undertaken a formal

review of this risk

Top Risks

10


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Failure to attractor retain top talent

Highlights

# risk in the government sector, which is losing its talents

to the well-paying private sector

# risk for surveyed Canadian companies

# risk cited in the Asia Pacic region, where rapid economic

growth may have used up the limited pool of available talents

while education/training have been unable to keep up

# risk in professional and personal services

Ranked at the bottom of the top risks in , when

companies were going through massive layos to stave

o the impact of the nancial crisis, failure to attract

and retain top talent has moved to number seven in the

current survey.

This seems to correspond with the changing business

environments, which are straining the process of

recruiting top industry talent, forcing organizations

to develop strategic plans that address demographic

shifts in the workforce, talent shortages, economic

pressures and globalization. Securing, retaining and

maximizing talent require a thoughtfully designed talent

strategyone that includes rigorous and appropriate

recruitment, assessment and development. As the global

pool of available candidates becomes increasingly

smaller, the ability to attract top talent has signicant

bottom-line implications.

Interestingly, while companies rank it as a top risk,

only percent of respondents say they currently have

a plan in place to address this risk and only four percent

use third-party consultants for talent recruitment and

retention strategies. With limited resources allocated,

it is dicult to foresee how this risk will be mitigated

in the future.

Top Risks

10


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A surge in commodity prices occurred toward the

end of , after the survey had been conducted.

For example, The Economist commodity index was

up by an annualized seven percent in June but

up over percent by December that year. Therefore,

we believe that the stability of commodity price looms

as a bigger concern for many organizations than thisranking might suggest. Of principal concern is the price

of energy, hence the high ranking for the natural

resources industry, inuenced by potential political

conicts and natural disasters in the regions of major

oil producers. It is hard to think of a corporation that is

not aected either directly or indirectly by commodity

prices in general, and specically, the price of energy.

Unlike many of the other risks on the top list,

commodity price risk has a direct and measurable cost

to most organizations. For this reason, it is not surprising

that percent of respondents have reported related

income losses and over percent are prepared to

deal with it.

Highlights

# risk rated by the natural resources (oil, gas and mining)

and food processing and distribution industries. For these

industries, it is an opportunity risk which is manageable and

integrated into their overall business strategy

# risk for German companies

percent have reported related income losses as costs increase

percent have a plan for or have undertaken a formal review

of this risk

Top Risks

10


35/102


36/102


Technology ailure/system ailure

Technology failure/system failure has showed up on

the list of top risks for the rst time since the start

of the survey in . This is no doubt due to its impact

on other risks. With the heavy reliance on their

technological infrastructure, businesses are becoming

more vulnerable to system failures, which have led to

business interruptions, damage to reputation and lossof customers. In Aons view this risk was further

aggravated (and elevated in the rankings) by the impact

of the economy as organizations temporarily delayed

improvements and maintenance on existing systems

to manage earnings during dicult times. With the

recession abating and IT investments on the rise, the

improvements to dated systems will help mitigate this

risk. According to Gartner, Inc., the spending on servers

by businesses worldwide increased by percent in

. However, the need for ever advancing technology

to support business processes will continue to keep this

risk high on the concerns of organizations.

Highlights

st time on the top risk list, jumping from # in

Rated a higher concern for aviation, non-aviation

transportation services, pharmaceuticals and biotechnology

and telecommunications and broadcasting industries

Top risk in all regions except North America, where

companies maybe relatively better prepared through heavy

investment in technology upgrades and wider adoption

of business continuity plans

Latin America is the least prepared and has reported

the most losses related to this risk last year

Top Risks

10


37/102


38/102



Cash ow/liquidity risk has dropped from number

seven in to number in this survey. The current

economic recovery has probably precipitated the drop.

The prolonged period of low-interest rates globally,

organizational planning, restructuring and a revival

of investor condence have enabled corporations to

access relatively cheap short-to-medium term fundingsources. According to Moodys global speculative grade

corporate study, the corporate default rate dropped

to . percent in November , from . percent a

year before. Even so, the survey reveals that organizations

still consider cash ow/liquidity a substantial risk in the

aftermath of the nancial crisis.

Highlights

The highest level of preparedness among the

top risks, at percent

Jumped from # in to # in

Higher concerns for companies with revenues under

USD billion; smaller companies have fewer assets against

which to borrow

A greater concern for companies in Latin America than

those in other regions

Top Risks

10 10


39/102


40/102


Top Risks

Toprisks

Riskrank

Economic slowdown Economic slowdown Damage to reputation

Regulatory/legislative changes Regulatory/legislative changes Business interruption

Increasing competition Business interruption Third-party liability

Damage to reputation/brand Increasing competition Distribution or supply chain failure

Business interruption Commodity price risk Market environment

Failure to innovate/meet customer needs Damage to reputation Regulatory/legislative changes

Failure to attract or retain top talent Cash ow/liquidity risk Failure to attract or retain sta

Commodity price risk Distribution or supply chain failure Market risk (nancial)

Technology failure/system failure Third-party liability Physical damage

Cash ow/liquidity risk Failure to attract or retain top talent Merger/acquisition/restructuringFailure of disaster recovery plan

Toprisksbyregion

AsiaPacifc Europe LatinAmerica MiddleEast&Arica NorthAmerica

Economic slowdown Economic slowdown Economic slowdown Economic slowdown Economic slowdown


Increasing competition Increasing competitionRegulatory/legislativechanges


Increasing competitionRegulatory/legislativechanges

Crime/Theft/Fraud/Employee Dishonesty

Damage to reputation/brand

Increasing competition



Commodity price risk Increasing competitionDamage to reputation/brand

Exchange rateuctuation

Business interruptionWeather/naturaldisasters


Failure to attract orretain top talent


Exchange rateuctuation


Technology failure/system failure


Business interruption Commodity price risk Cash ow/liquidity riskMerger/acquisition/restructuring





Lack of technologyinfrastructure tosupport business needs

Capital availability/credit risk

Commodity price risk Technology failure/system failure

Political risk/uncertainties






Capital availability/credit risk

Third-party liability

Note: In Europe risks and are tied for ninth. In Latin America risks are tied for rst and risks are tied for fourth. In the Middle East & Africa risks and are tied forrst, risk and are tied for fourth and risks are tied for seventh. In North America risks and are tied for ninth.


41/102


Top3risksbyindustry

Industry KeyRisk KeyRisk KeyRisk3

Agribusiness Regulatory/legislative changes Commodity price risk Product recall

Aviation Economic slowdown Increasing competitionRegulatory/legislative changes,Third party liability

Banks Economic slowdown Regulatory/legislative changes Capital availability/credit risk

Chemicals Economic slowdown Regulatory/legislative changes*Commodity price risk,Business interruption

Construction Economic slowdown Increasing competition Damage to reputation/brand

Consumer Goods Manufacturing Economic slowdown Increasing competitionDistribution orsupply chain failure

Educational and Nonprots Regulator y/legislative changes Economic slowdown Damage to reputation/brand**

Food Processingand Distribution

Commodity price risk Damage to reputation/brand* Product recall

Government Economic slowdown Regulatory/legislative changes* Failure to attract or retain top talent*

Health Care Regulatory/legislative changes Increasing competition Economic slowdown

Hotels and Hospitality Economic slowdown Business interruption Regulatory/legislative changes

Insurance, Investmentand Finance Regulator y/legislative changes Economic slowdown Damage to reputation/brand

Lumber, Furniture,Paper and Packaging

Economic slowdown Commodity price riskRegulatory/legislative changes,Exchange rate uctuation, Businessinterruption

Machinery and EquipmentManufacturers

Economic slowdownFailure to innovate/meetcustomer needs

Regulatory/legislative changes,Distribution or supply chain failure

Metal Milling andManufacturing

Economic slowdown Commodity price risk Business interruption

Natural Resources(Oil, Gas and Mining)

Commodity price risk Political risk/uncertainties Regulatory/legislative changes**

Non-Aviation Transportation

Manufacturing Economic slowdown Commodity price risk

Increasing competition, Failure

to innovate/meet customer needs,Distribution or supply chain failure**

Non-AviationTransportation Services

Economic slowdown Regulator y/legislative changes* Increasing competition

Pharmaceuticals andBiotechnology

Regulatory/legislative changes Business inter ruption Distr ibution or supply chain failure**

Professional andPersonal Services

Economic slowdownProfessional indemnity/errorsand omissions liability


Real Estate Economic slowdown Damage to reputation/brand Physical damage**

Retail Trade Economic slowdown Damage to reputation/brand Increasing competition

Rubber, Plastics,Stone and Cement

Economic slowdown Commodity price riskFailure to innovate/meet customerneeds, Business interruption

Technology Economic slowdownFailure to innovate/meetcustomer needs


Telecommunicationsand Broadcasting

Regulatory/legislative changes Increasing competitionEconomic slowdown, Businessinterruption, Computer Crime/Hacking/

Viruses/Malicious Codes

Utilities Regulatory/legislative changes Economic slowdown Commodity price risk

Wholesale Trade Increasing competition Economic slowdown Regulatory/legislative changes

*Tie for # risk**Tie for # risk


42/102


Risk readiness means a company has a comprehensive plan in

place to address risks or has undertaken a formal review of thoserisks. Comparing with results in the survey, overall readiness

for the top risks remains approximately the same percent

of respondents indicate that they feel adequately prepared.

For each individual risk on the top list, respondents register

the highest percentage of readiness for cash flow/liquidity

at percent, a slight uptick from percent in the prior survey.

Sixty-four percent say their organizations are prepared to handle

the impact of the economic slowdown, compared with percent

in . Sixty-ve percent feel ready for regulatory/legislative

changes, unchanged from , while percent for increased

competition, the same as .

Two risks that respondents have identied as the most dicult to

manage and the least ready for are: failure to attract or retain top

talent at percent and damage to reputation/brand at percent.

These are typically more complex, dicult to control, carry a

degree of unpredictability and are enterprise-wide. While dicult

to manage and substantially uninsurable, these risks must still

be addressed and require innovative forward-looking solutions.

From an industry perspective, given the prolonged sluggishness

in manufacturing and the real estate market, as well as thecorresponding impact on resource allocation, it is not surprising

that the level of risk readiness in the metal milling and

manufacturing and the real estate industries have dropped

the most. Conversely, the chemical industry has increased

its level of preparedness, reecting the fact that the industry

has learned from the nancial crisis and realized the need to adjust

their business strategies to better prepare for risks. Similarly,

the retail trade industry has also increased its reported readiness

as they have had to quickly adapt to changing consumer

purchasing habits.

If we compare a companys readiness for top risks with how

organizations rank themselves on Aons Risk Maturity Index,we can see that the more advanced a company progresses on

the Aon index, the more prepared it is for the top risks.

As risk and risk management practices receive increased attention

and scrutiny from key stakeholders, and with the economic

expansion underway, we expect there will be an upward trend

toward risk readiness in the next two years.

Top Risks

Risk readiness or the Top Risks

Economic slowdown

Reported readiness for top 10 risks

0 10 20 30 40 50 60 70 80








Cash flow/liquidity risk


2011 200964%60%

65%

65%

71%

71%

61%

58%

69%

79%

68%

62%

60%68%

76%

77%

76%

78%

77%

75%


43/102


Notable change compared to

Averagereportedreadinessortoprisksbyindustry

Industry Change

Utilities % % -%

Chemicals % % %

Retail Trade % % %

Banks % % %

Telecommunications and Broadcasting % % -%

Health Care % % %

Real Estate % % -%

Technology % % -%

Hotels and Hospitality % % %

Lumber, Furniture, Paper and Packaging % % -%

Rubber, Plastics, Stone and Cement % % -%

Non-Aviation Transportation Services % % -%

Professional and Personal Services % % %

Government % N/A N/A

Natural Resources (Oil, Gas and Mining) % % -%

Educational and Nonprots % % %

Insurance, Investment and Finance % % -%

Consumer Goods Manufacturing % % -%

Construction % % %

Food Processing and Distribution % % -%

Wholesale Trade % % -%

Aviation % N/A N/A

Metal Milling and Manufacturing % % -%

Machinery and Equipment Manufacturers % % -%

Agribusiness % % -%

Pharmaceuticals and Biotechnology % % -%

Non-Aviation Transportation Manufacturing % % %


44/102


Top Risks

Averagereportedreadinessortoprisksbyregion

Region

Asia Pacic % %North America % %

Europe % %

Latin America % %

Middle East & Africa % %

Reported readiness from top 10 risks by Aons Risk Maturity Index

0

25

50

75

100

50%58%

71% 71%

85%

Initial/Lacking Basic Defined Operational Advanced

The Aon Risk Maturity Index, developed in partnership with The Wharton School of the University of Pennsylvania,is the rst-of-its-kind tool for leaders in nance and risk management to assess their organizations risk managementcapabilities and receive immediate feedback in a Risk Maturity Rating with comments for improvement.

Please email [email protected] if you would like to learn more about how you can determine yourrisk maturity rating.

Compared to that of , we have noticed a decline in average reported readiness for the top risks in each region. The decreasecould be attributed to the changes in the top risk makeup and respondent prole in the current survey.


45/102


Similar to , topping the list of income losses in the past

months relating to the most cited risks are economic slowdownand commodity price, followed by increased competition.

Sixty-seven percent of the respondents say they have experienced

loss of income from the economic slowdown, up from percent

in . Two attributable factors are:

The survey was conducted at the end of , when the

nancial crisis was at its peak. Depending on the industry,

the losses from the crisis might not have thoroughly assessed the

losses yet.

The increase also reects the continued challenges companies

are facing during the slow economic recovery.

The percentage of companies reporting commodity price-related

losses has dropped from percent in to percent in the

current survey. The decrease corresponds with its drop in overall

risk ranking from fth in to eighth this year (we discussed this

earlier). It is also interesting that, similar to results in prior surveys,

over percent of respondents mention that they have plans in

place to address this risk or have undertaken a formal review

of the risk, and yet percent are unable to avoid a loss.

This is consistent with expectations for companies who arehighly exposed to the commodity price risk, where even

with the r ight planning in place, companies will not always

be able to prevent lossses.

Economic slowdownand commodity price topthe list o losses arisingrom the top risks

Losses associated with the Top Risks

Lossesromtoprisks

Riskrank Riskdescription

:Lossoincome

inlastmonths

:Lossoincome

inlastmonths

Economic slowdown % %

Regulatory/legislative changes % %

Increasing competition % %

Damage to reputation/brand % %

Business interruption % %

Failure to innovate/meet customer needs % %

Failure to attract or retain top talent % %

Commodity price risk % %

Technology failure/system failure % %

Cash ow/liquidity risk % %


46/102


47/102

On average, 7%have reported losso income rom thetop risks

%


48/102


Top Risks

Averagereportedlossoincomeromtoprisksbyindustry

Industry

:Averagelossoincome

experiencedromtoprisk

inthelastmonths

:Averagelossoincome


in thelas t mo nths Change

Agribusiness % % -%

Aviation % N/A N/A

Banks % % %

Chemicals % % %

Construction % % -%

Consumer Goods Manufacturing % % -%

Educational and Nonprots % % -%

Food Processing and Distribution % % -%

Government % N/A N/A

Health Care % % %

Hotels and Hospitality % % -%

Insurance, Investment and Finance % % -%

Lumber, Furniture, Paper and Packaging % % %

Machinery and Equipment Manufacturers % % -%

Metal Milling and Manufacturing % % %

Natural Resources (Oil, Gas and Mining) % % -%

Non-Aviation Transportation Manufacturing % % -%

Non-Aviation Transportation Services % % -%

Pharmaceuticals and Biotechnology % % -%

Professional and Personal Services % % %

Real Estate % % -%

Retail Trade % % -%

Rubber, Plastics, Stone and Cement % % -%

Technology % % -%

Telecommunications and Broadcasting % % %

Utilities % % -%

Wholesale Trade % % -%

Notable change compared to


49/102


Averagereportedlossoincomeromtoprisksbyregion

Region

:Averagelossoincome


inthelastmonths

:Averagelossoincome


inthelastmonths

Latin America % %

Europe % %

Asia Pacic % %

North America % %

Middle East & Africa % %


50/102


The majority o respondents consider loweringtotal cost o risk as one o the top beneftso investing in risk management at 6 percent,

yet less than 4 percent have tracked andmanaged all components o their TCOR, downrom 44 percent in 9. Senior managementsintuition and experience remains the primarymethod used by survey respondents to identiyand assess major risks acing their organizations.

Identiying, Assessing, Measuring

and Managing Risk


51/102


It is dicult to manage what is not measured. There is a continued

downward trend in the measurement of TCOR and each of itscomponents. Less than percent of respondents in the

survey report they have tracked and managed all components

of their TCOR, down from percent in . This downward

trend could be inuenced by the decreasing cost as a result of

the continued soft pricing environment. With limited resources,

organizations tend to monitor rising expenses, rather than

decreasing ones. As the market hardens, we expect the percentage

of organizations measuring their TCOR components will go

up. Nonetheless, in the long run, failure to track and manage

all aspects of TCOR could be detrimental to an organization.

An organizations TCOR comprises risk transfer costs (insurance

premiums) plus risk retention costs (retained losses and claimsadjustment costs) plus external (brokers, consultants and other

vendors) and internal (sta and related) risk management costs.

When asked about how they measure each element of TCOR,

risk transfer costs is the element most measured, by percent of

respondents, down from percent in . Risk retention costs

are measured by percent, vs. percent in . Fifty-ve

percent track external risk management costs, down from

percent, while percent measure internal risk management

costs, down from percent in the earlier survey.

Among the reasons cited for failure to measure all TCOR

components, percent attribute it to shrinking resources/expertise and percent say they lack data/information.

Thirty percent of respondents do not nd the process valuable.

The percentage of respondents measuring full TCOR is

correlated to an organizations size. Forty-nine percent of

companies with revenues of USD billion or more measure full

TCOR, whereas only percent of companies under USD billion

do. Organizations with formal risk management departments are

more likely to measure their full TCOR ( percent), than those

without one ( percent). This could suggest that companies with

higher revenues and/or with risk management departments might

have more resources to focus on measuring the full TCOR.

ReasonsornotmeasuringalltheelementsoTCOR

Category Percentage*

Lack of resources/expertise %

Lack of data/information %

Dont nd the process valuable %

Dont measure cost of risk %

Measuring Total Cost o Risks

Elements of TCOR measured

0 20 40 60 80 100

Internal riskmanagement costs

External riskmanagement costs

Riskretention costs

Risktransfer costs

58%

44%

39%

74%

60%

55%

97%

92%

86%

82%

74%

66%

2011

2009

2007

Less than 4%

measure TCOR

*The percentage in this table does not add up to percent as respondents havethe option to select more than one answer.


52/102


Senior managements intuition and experience remains the

primary method used by survey respondents to identify and assessmajor risks facing their organizations, followed by business unit

risk registers or key risk indicator worksheets and structured

enterprise-wide approach. In practice, respondents are probably

using a combination of the above methods but may not yet use a

formal risk assessment and prioritization approach to consistently

focus management attention and resources on the core risks.

Should organizations relying predominantly or exclusively on

management experience and intuition for their major risk decisions

be concerned?

In todays fast evolving business environment, where the past may

not always be the best predictor of the future, exclusive relianceon senior managements intuition and experience to identify and

assess risks could result in a signicant loss to an organization.

Some of the reasons include:

risk identication based on experience tend to miss emerging

or new risks;

risk identication based on intuition may not be consistent

across the organization or over time, and may not be given

credence by others; and

there may be a tendency toward risk aversion by managers

with the viewbetter safe than sorry.

On the other hand, the use of business unit risk registers and

enterprise-wide approach to identify and assess risk is moredesirable than the use of senior management intuition and

experience, adding depth to the process and enabling the

organization to more eectively assess the potential impact of

an identied risk on the organization so it can deploy appropriate

resources for treatment.

Organizations with revenues greater than USD billion are more

than twice likely to utilize a structured enterprise-wide approach

in the identication and assessment of risks than companies under

USD billion.

As risks increase in complexity, organizations must integrate

intuition and experience with appropriate analytics to make themost informed objective and proactive decisions.

Senior managementsintuition and experienceremains the primarymethod used by surveyrespondents to identiyand assess major risks acingtheir organizations

Identiying and assessing major risks

Identifying, Assessing, Measuring and Managing Risk


53/102


Identification by region

0

20

40

60

80

100 Other

Structured enterprise-wide approach

External service provider/advisor

Business unit risk registersor key risk indicator worksheets

Senior management intuition and experience

Board level discussion and analysis

All Asia Pacific Europe LatinAmerica

MiddleEast & Africa

NorthAmerica

2% 2%5% 4%

30%

29%

52%

23%

52%

12% 13%19%

19% 9% 9%

35%29%

19%

18%

15%

2%4%

5%

3%

19% 19%

10%

41%

17%

3%

18%

3%

21%

43%

Identification by revenue (in USD)

Other






0

20

40

60

80

100

< 1B 1B4.9B 5B9.9B 10B14.9B 15B24.9B 25B+

53%

15%

3%

10%

3% 4% 3% 4%

20% 30% 32% 34%

46%

3%

2%

4%

4%

26%

28% 28%

23%

24%

37%28%

36%24%

23%

15%10%

4%14%

2%8%


54/102



0

20

40

60

80

100

Assessment by revenue (in USD)

Other






< 1B

2%4%

4%

4%

5%

3% 4%

4%

47%

42%

21%

32%

28%

10%

33%

27%28%36%

38%

25%

23%

8%

6%

4%

4%

4%

3% 4%

27%28%

24%29%

19%

10%

10%

1B4.9B 5B9.9B 10B14.9B 15B24.9B 25B+

0

20

40

60

80

100

Assessment by region

Other






All Asia Pacific Europe LatinAmerica

MiddleEast & Africa

NorthAmerica

7%

3%2% 2%

5% 3%

8% 12%14%

9%5%

42%

26%

7%

3%

5%

10%

9%

7%

14%

45%

10%15%

25%16%

27%

30% 33%

14%

24%

35%

35% 33%

18%

47%


55/102


More companies have started to rely on brokers or independent

consultants as the primary source to assist them in determiningwhat limits of insurance to buy. In the survey, percent of

respondents say they use brokers or independent consultants,

up from percent in . This is a positive trend, as brokers or

independent consultants typically would take a comprehensive

approach, utilizing a combination of benchmarking and analytical

tools and methods to advise their clients on the optimal limits

to purchase. That probably explains why the percentage of

organizations using benchmarking against peers has dropped

from percent in to percent in .

In relation to company size, approximately four in respondents

with revenue less than USD billion relies primarily on their

brokers or independent consultants to determine limit, whileorganizations over USD billion are evenly split among the various

methods. A signicant number of large corporations, respondents

with USD . billion or more in revenue, have begun augmenting

their traditional approaches with a more analytical approach for

determining limits.

On a regional basis, reliance on a broker or independent

consultant is the primary source to determine limits exceptin Latin America, where it is more common to use quantitative

analysis or metrics, and in the Middle East & Africa, where

a signicant number of companies depend on managements

intuition and experience.

Since organizations without a formal risk management department

may not have the risk management expertise or in-house

resources to assess the options and evaluate the implications of

various choices, they rely most heavily on brokers or independent

consultants ( percent). Companies with formal risk departments

evenly use a combination of all of the top four methods.

34% use brokers orindependent consultantsas the primary source todetermine limits o insurance

Determining limits o insurance


56/102


Determination of insurance limits by revenue (in USD)

0

20

40

60

80

100 Other

11%

5% 6% 8% 4% 7% 8%

24%21%

32%

10%15%

25%

43%

13%

3%6% 4%

8%4%

18%23%

16%

41%

46%

29%23%

12%

17%

15%18% 23%

28%

24% 13%

Specific study or structured workshop

Quantitative analysis or metrics

Rely on broker or independent consultant


Benchmark against peers

< 1B 1B4.9B 5B9.9B 10B14.9B 15B24.9B 25B+

0

20

40

60

80

100

Determination of insurance limits by region

All

2011

All

2009

Asia

Pacific

Europe Latin

America

Middle

East & Africa

North

America

2%

22%

19%

21%

25%

20%

20%

36%

23%

21%

33%

14%

25%

39%

30%30%34%

18%

4% 4%

5%

13%

13%16%

6% 10%

5%5%6% 6%4%

14%

9%

9%8%

21%

14%23%

40%18%

15%

Other

Specific study or structured workshop

Quantitative analysis or metrics

Rely on broker or independent consultant


Benchmark against peers



57/102


Since the survey was conducted at the height of the world

nancial crisis, a large majority of the respondents ( percent)cited lowering their TCOR as the top benet for investing in risk

management. While lowering TCOR is still considered a top

priority by respondents in the survey at percent, it has

been outranked percent by another key component in risk

managementmore informed decision-making on risk taking/risk

retention. The success of a companys risk management function

is determined by how well these two essential elements

are managed.

As expected, organizations without a formal risk management

department place less value on all the listed benets except for

increased return on investment, as opposed to organizations

have a formal risk management department. In the categoriesof informed decision-making on risk taking/risk retention

and lowering total cost of insurable risk, there is a large gap

in perceived value between organizations with a formal risk

management department and those without ( percent for

informed decision-making and percent for lowering TCOR).

These perception gaps might reect a lack of understandingon the part of organizations without a formal risk management

department of the true value that professional risk management

expertise could bring.

6% cite lowering TCOR asa top beneft or investing inrisk management

Benefts o investing in risk management

Primarybeneftsoinvestinginriskmanagement

Category :All :All

:WithRisk

Mgmt.Dept.

:WithoutRisk

Mgmt.Dept.

:Dierence

inPerceived

Benefts

More informed decisions on risk taking/risk retention

% % % % %

Lower total cost of insurable risk % % % % %

Improved internal controls % % % % %

Improved business strategy % % % % %

Improved standards of governance % % % % %

Improved business continuity planning % % % % %

Increased shareholder value % % % % %

Increased return on investment % % % % -%

Reduced compliance costs % % % % %

Other % % % % %


58/102


Economic volatility and increased scrutiny from regulators

remain the most important external drivers strengthening riskmanagement. Following the nancial crisis, organizations have

a greater awareness of the need to protect assets and the

balance sheet from unexpected loss. They also have to assure

full compliance with both new and existing regulations and

disclosure practices.

Survey respondents indicate that demand from investors for

greater disclosure and accountability has decreased from

percent in to percent in the current survey. Based on

our experience, the drop mostly likely reects an increase in the

number of respondents with revenues of USD billion or less in

this years survey, rather than decreased investor scrutiny. New to

the list is pressure from suppliers and vendors, cited by six percentof the respondents. Considering the r ising trend of supply-chain

related risks today, we feel that the percentage for this r isk driver

would increase over time.

Economic volatility is citedas the most importantexternal driver strengtheningrisk management


External drivers or risk management

External drivers strengthening risk management (past two years)

Economic volatility

0 10 20 30 40 50

Increased focus fromregulators

Demand from investors for greaterdisclosure and accountability

Workforce issues

Large third party liabilitylosses/litigation

Pressure from customers

Natural weather events

Other

50%

43%

38%

35%

22%

27%

19%

18%

17%

14%

20%

14%

18%

13%

16%

11%6%

6%Pressure from suppliers/vendors

Political uncertainty

20092011


59/102


Aons Risk Maturity Index helps organizations better understand

their risk management capabilities relative to standards and bestpractices. When asked to identify their rankings among the model

denitions, the majority of respondents in Aons Global Risk

Management Survey indicate they are now past the basic stages

of risk strategy and framework. The results are similar to those of

Aons recently launched Risk Maturity Index. Even more promising,

compared to the Global Enterprise Risk Management Survey,

the number of respondents in this survey describing themselves

as Operational or Advanced has increased by percent.

The number o respondentsdescribing themselves asOperational or Advancedhas increased by 3%

Aons Risk Maturity Index

5

10

15

20

25

30

35

40

AdvancedOperationalDefinedBasicInitial/Lacking

Current stage of development of organizations risk strategy and framework

2010 2011

Component and associatedactivities are very limitedin scope and may beimplemented on anad-hoc basis to addressspecific risks

Limited capabilities toidentify, assess, manageand monitor risks

Sucient capabilitiesto identify, measure,manage, report andmonitor major risks;policies and techniquesare defined and utilized(perhaps independently)across the organization

Consistent ability toidentify, measure, manage,report and monitor risks;consistent application ofpolicies and techniquesacross the organization

Well-developed ability toidentify, measure, manageand monitor risks acrossthe organization; processis dynamic and able toadapt to changing risk andvarying business cycles;explicit consideration ofrisk and risk managementin management decisions

11%

7%

22%

23%

39%

34%

16%

24%

7%

12%

* data is from Aons Global Enterprise Risk Management Survey. The information provided is an extract of Aons proprietary Risk Maturity Index and should not beconstrued as full assessment of risk maturity, but rather as an indicator. The ranking above represents a respondents self assessment of maturitybased upon their reviewof the maturity levels. Based on the ndings from Aons Global Enterprise Risk Management Survey Aon has developed, in conjunction with the Wharton School of theUniversit y of Pennsylvania, the Aon Risk Maturity Index. Please send an email to risk.maturi [email protected] if you would like to learn more about how to determine yourrisk maturity rating.


60/102


As is consistent with the prior two surveys,risk remains frmly on board agendas. Three outo our companies say their board or a boardcommittee has established or partially establishedpolicies on risk oversight and management.

Board Oversight

and Involvement


61/102


Over the past few years, boards of directors have been under

increasing pressure from stakeholders and regulators to moreeectively maintain oversight and understanding of risk

management frameworks within their organizations. They are now

taking a leading role. The survey results show that risk remains

rmly on the board agendas. Three out of four companies say

their board or a board committee has established or part ially

established policies on risk oversight and management.

Board level commitment is critical to establishing, maintaining

and funding a framework for risk oversight and management,

and embedding this within the culture of the organization.

As risks and risk management are gaining increasing attention

and scrutiny, board or board committee oversight will continue

to increase.

If we compare a companys board involvement in risk oversight

and management with how organizations rank themselves on

Aons Risk Maturity Index, we can see that the more advanced

a company progressed on Aons Risk Maturity Index, the higher

the involvement of its board in establishing policies for oversight

and management.

Of all the regions surveyed, the Asia Pacic and the Middle East

& Africa regions have the highest percentages of respondents

with established or par tially established policies, at percent

and percent respectively.

Across industries, the following sectors indicate the highest rate

of board involvementgreater than or equal to percent:

Banking

Chemicals

Natural resources (oil, gas and mining)

Telecommunications and broadcasting

Organizations with a risk management department are more likely

than those without one to have established or partially establishedboard policies on risk oversight and management.

More than 8% ocompanies with USD billion or more haveboard policies on risk

oversight and management

Policies on risk oversight and management


62/102

3 out o 4 companies say their boards or boardcommittees have established or partially establishedpolicies on risk oversight and management

Board Oversight and Involvement


63/102


Board of directors or a board committee has established policieson risk oversight and management by risk management department

0

25

50

75

100 Dont know

48% 47% 56%

30%

32%

15%17%20%

27% 29%

25%

33%

5%5%7%5%

Partially

No

Yes

All-2011 All-2009 WithRisk Mgmt.Dept.-2011

WithoutRisk Mgmt.Dept.-2009

0

25

50

75

100

Board of directors or a board committee has established policies on risk oversight and management by revenue (in USD)

Dont knowPartially NoYes

37% 34%

58%

39%

54%53%

68%

62%66%

57%

69%

29%

4%9%

5% 7% 8% 8% 12% 8%3% 3%

25%

25%

35%

30% 31%

16%22%

21%32%

21%30%

32%

12%

19%

9% 7% 4%8%

10% 8%10%

< 1B2011

< 1B2009

1B4.9B2011

1B4.9B2009

5B9.9B2011

5B9.9B2009

10B14.9B2011

10B14.9B2009

15B24.9B2011

15B24.9B2009

25B+2011

77%

4%

17%

2%

25B+2009


64/102


Nearly nine out of companies have some board-level

involvement in their current approach to risk management.Of the approaches cited, annual board reviews and approvals

are ranked the most common, followed by the board

considering specic business risks.

Regionally, the European boards continue to lead, with percent

of the surveyed indicate dierent levels of board involvement as

in risk-related decisions.

For the third consecutive time, banking, which is one of the

most regulated industries, has a percent board-level

involvement in the current approach to risk management at

some level, followed by the pharmaceutical and biotechnology

industries. Agribusiness had the least board involvement.

Nearly 9 out o companies have some board-levelinvolvement in their current approach to risk management

Board Oversight and Involvement

Approach to risk management at the board level


65/102


Current approach to risk management at board level by risk management department

0

25

50

75

100

Dont know

Board systematically participates

Board considers specific business risks

Board reviews and approves annually (or periodically)

No board involvement

All-2011 All-2009 With RiskMgmt. Dept.

2011

WithoutRisk Mgmt.Dept.-2011

8% 6% 7% 10

global risk management survey 2011

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