Top 10 risks faced by businesses in 2013

Businesses must begin reinvesting in fundamental areas of their operations if they are to survive and thrive, says Guy Scott, CEO of Risk Solutions at Aon South Africa.

Commenting on the top 10 risks that faces businesses in 2013 Scott said the fallout from the credit crisis first identified in mid-2007 continues to impact on organisations around the world. “Throughout the economic recession, many organisations heavily curtailed spend on information technology and put a freeze on hiring, research and development projects.  But business leaders are realising that this is not a sustainable strategy.  As a result of the continued cautionary approach to spending on key strategic areas of the business even after the recession, organisations are now facing new risks in the form of failure to innovate and fulfil customer needs and failure to attract top talent”.

He said economic uncertainty remains the main and ongoing concern of business, followed closely by regulatory changes.  How companies manage capital and profits against a backdrop of deepening strategic risks arising from economic, political, competitive and regulatory factors will be a key focus for all boards during 2013 and the foreseeable future.

“From Aon’s Global Risk Management Survey, economic slow-down still tops the list of the top 10 risks facing business.  In light of the current economic uncertainty and the ongoing Euro crisis, we believe this will remain a top 10 risk for the foreseeable future. We’re also seeing for the first time two new risks entering the top 10 list – failure to innovate and meet customer needs and technology/system failure,” said Scott.

According to Aon’s Global Risk Management Survey, the top 10 risks facing business are:

1.    Economic slowdown

2.    Regulatory/legislative changes

3.    Increasing competition

4.    Damage to reputation/brand

5.    Business interruption

6.    Failure to innovate/meet customer needs

7.    Failure to attract or retain top talent

8.    Commodity price risk

9.    Technology failure/system failure

10.  Cash flow/liquidity risk

Regulatory/legislative changes have also remained a top 10 global risk since the previous survey done in 2008.   “We have seen regulatory changes, even small ones adding tremendous cost to corporations, for example the new FAIS Legislation in South Africa has added significant cost in terms of time and training of staff in complying with the new legislation.

With the heavy reliance on technological infrastructure, businesses are also becoming more vulnerable to system failures, data breaches and social media exposure, causing business interruption, loss of customers and reputational damage.  “In fact, as the frequency and voracity of cyber-attacks increases worldwide, it is estimated that over 70% of South African businesses are significantly unprepared for cyber liability risks, and in turn, woefully underinsured when it comes to managing the financial and legal implications that follow a major cyber breach,” says Guy.

Legislatively, the Protection of Private Information Bill (POPI), which has just been passed by parliament and will be signed into South African law within months, will also make onerous demands on how a client’s personal data is managed, stored and used by a business.   The growing use of cloud computing also brings with it its own set of security risks.

Aon also adds that 2013 could see the entry of a new risk into the top 10, that being climate change, ranked at 16 in the 2011 survey.  “Recent weather catastrophes both globally and locally are ensuring that climate change makes its presence felt, with an increased prevalence of catastrophe risks in certain geographies including earthquakes, tsunamis, flooding, wind storms, tornadoes, hurricanes and run-away fires. Overseas insurers and reinsurers are being impacted by adverse catastrophe claims which are resulting in deteriorating underwriting results.  As a result, we expect to see a hardening of rates in 2013 with regards to these risks,” explains Guy.

“It is crucial for businesses to understand the nature and extent of the kinds of risks and threats to their operations and to take appropriate action to mitigate these risks. One way of doing this is by reviewing and strengthening their specialist insurance cover under the guidance and advice of a professional risk advisor,” said Scott.

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