Aon Australias 200405 Risk Management and Total Cost of Insurable Risk Survey

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Aon Australias 2004/05 Risk Management and
Total Cost of Insurable Risk Survey
Presented by Hadyn Hewitt
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Hadyn Hewitt .

• Chartered Accountant by Profession
• National Manager of Aon Australias Analytical
  Services
• Team has the following skills
• Mathematics
• Statistics
• Actuarial
• Accounting
• Insurance

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Purpose of the 2004/05 survey

• To identify the dominant business risk issues
  concerning corporate Australia.
• To obtain an understanding of how Australian
  organisations are profiling, treating and
  financing their insurable risk.
• To provide organisations with the ability to
  benchmark their risk management and risk
  financing performance over time and across
  similar organisations.
• Benchmarking of risk management performance in
  Australia was unavailable prior to this
  initiative being launched in 2002 (the only
  comparison was the U.S. RIMS initiative).

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Reducing Costs managing risk financing
Probability of loss
Loss value ()
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Who was surveyed?

• 740 private and public sector organisations
  received questionnaires
• 233 responses (94 responses in 2003/04, 89 in
  2002/03)
• Responses came from both Aon clients and
  prospects
• Client confidentiality preserved via Horwath
  Chartered Accountants Melbourne

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Respondent industry demographics
Sample
Industry category
size

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8.6
Agriculture, forestry and fisheries
12
5.2
Construction and engineering
14
6.0
Finance and insurance
28
12.0
Manufacturing
17
7.3
Mining
13
5.6
Government and education
15
6.4
Retail / wholesale trade
19
8.2
Service industries
14
6.0
Transportation, storage and communications
25
10.7
Health and social services
10
4.3
Property and real estate
9
3.9
Automotive and industrial machinery manufacturing
15
6.4
Food and beverage manufacturing
10
4.3
Tourism and leisure
12
5.2
Utilities
100
Total
233
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Agenda

• What are the top 10 risk concerns for Australian
  executives?
• How does my total cost of risk compare to
  others?
• How are others managing insurable risk?
• Will our insurance costs increase in 2005/06?
• How are others financing insurable risk?
• Conclusion

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Top 10 Risks 2004/05
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Changes over time in key risk concerns
Comparison of the top 10 risk concerns
Rank
2003/04
2002/03
2004/05
1
Legal
Brand and Image
Brand and Image
2
Physical Assets
Corporate Governance
Brand and Image
2
Systems
3
External Dependency
Regulatory
4
Market Structure
Legal
Human Resource
5
Legal
Systems
Human Resource
6
Systems
Corporate Governance
Human Resource
7
Regulatory
Market Structure
Liquidity
8
Shareholder Needs
Physical Assets
9
Corporate Governance
Liability
Capital Structure
10
Intellectual Property
Liquidity
Information Management
13
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International Comparison of Key Risks
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Top Risk - Aon USA Survey 2004

• The 1 risk reported was Business Interruption
• .indicating a fundamental awareness of the
  potential impact of both internal and external
  events on the ability of the organisation to
  survive and thrive
• .potentially due to the increasing role of
  technology in manufacturing and service
  processes
• .thus, interruptions, even short-term, may
  negatively impact an organisation swiftly and
  significantly.

• Hurricane Katrina ?????

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Top Risk Area - Aon USA Survey 2004

• The 1 risk area formally reviewed was Business
  Continuity
• Business Continuity Planning (BCP) is often used
  interchangeably with
• Disaster Recovery Plans (IS/IT)
• Emergency Response Plans
• Emergency Preparedness plans
• Crisis Management
• BCPs generally take into consideration many of
  the Top 10 risks
• One factor driving interest in BCPs may be S.404
  of Sarbanes-Oxley which mandates that firms
  implement, no later than 15/4/05, comprehensive
  control processes to identify, understand and
  manage certain classes of risk.

• Hurricane Katrina ?????

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Agenda

• What are the top 10 risk concerns for Australian
  executives?
• How does my total cost of risk compare to
  others?
• How are others managing insurable risk?
• Will our insurance costs increase in 2005/06?
• How are others financing insurable risk?
• Conclusion

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What is TCOIR ?

• TCOIR is defined as

• Risk transfer premiums
• Risk retention costs
• Internal risk management costs
• External risk management costs

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What makes up total cost of insurable risk?
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Total cost of insurable risk by industry
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Total cost of insurable risk by revenue
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Risk dollar spend historical comparison
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Agenda

• What are the top 10 risk concerns for Australian
  executives?
• How does my total cost of risk compare to
  others?
• How are others managing insurable risk?
• Will our insurance costs increase in 2005/06?
• How are others financing insurable risk?
• Conclusion

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Who is using AS/NZS4360?
No. of
of
No. of public
of public
Response
responses
responses
companies
companies
Mandated group wide
33
27
7
29
Used by all business units
16
13
5
21
Used by some business units
21
17
2
8
Not used at all
39
31
7
29
Unsure
15
12
3
13
124
100
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100
Total
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Strategy development responsibilities
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Agenda

• What are the top 10 risk concerns for Australian
  executives?
• How does my total cost of risk compare to
  others?
• How are others managing insurable risk?
• Will our insurance costs increase in 2005/06?
• How are others financing insurable risk?
• Conclusion

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Premium movements 2002 - 2004
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Aons Premium Commentary post 30 June 2005

• Property
• Recognition that in some industry sectors, the
  general risk profiles of insureds has improved
  over the last 3 4 years as the effects of
  governance, compliance and risk management type
  matters have taken hold in Corporate Australia.
  This is being rewarded by insurers!
• Aon expect the softening trend to continue to the
  beginning of 2006 and more likely mid-year,
  albeit at a slightly less aggressive rate.

• Hurricane Katrina ?????

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Aons Premium Commentary post 30 June 2005

• Public Products Liability
• Market continues to show increasing levels of
  competition and improved terms and conditions for
  insureds.
• Larger organisations experienced rate reductions
  of 10 15 and slightly more for medium sized
  organisations.
• Reason Insurers current profitability and
  their appetites for growth.
• Tort reform general market acceptance that
  claims frequency is reducing and will remain low,
  but underwriter caution regarding the impact of
  tort reform on the severity of losses.
• Aon expect improved terms for clients at least
  until the middle of 2006.

• Hurricane Katrina ?????

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Agenda

• What are the top 10 risk concerns for Australian
  executives?
• How does my total cost of risk compare to
  others?
• How are others managing insurable risk?
• Will our insurance costs increase in 2005/06?
• How are others financing insurable risk?
• Conclusion

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Do you know your risk tolerance?
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How do respondents finance their risk retention?
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Agenda

• What are the top 10 risk concerns for Australian
  executives?
• How does my total cost of risk compare to
  others?
• How are others managing insurable risk?
• Will our insurance costs increase in 2005/06?
• How are others financing insurable risk?
• Conclusion

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Conclusion

• The 2004/05 Survey
• Captures key risk concerns throughout Australia
• Provides decision makers with an insight into how
  others are identifying and treating insurable
  risks
• Provides a useful benchmarking tool that can be
  used as a long term risk metric when measuring
  risk management performance
• Copies of the 2004/05 survey are available upon
  request.

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For more information

• The 2005/06 survey will be distributed in October
  - please ensure that you participate.
• For further queries please contact
• Hadyn Hewitt
• Divisional Manager - Aon Risk Services Australia
  Limited
• Level 5, 440 Collins Street
• Melbourne, Victoria 3000
• Telephone [phone]
• Mobile [phone]
• Email hadyn.hewitt_at_aon.com.au

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Questions?