By CYRIL TUOHY, managing editor of Risk & Insurance®
Industries with the most improved readiness to risks over the past two years include the chemical industry, retail, professional services, education and nonprofits, and construction, a new survey revealed.
Industries that registered the steepest drops in risk readiness were metal milling and manufacturing; real estate; oil, gas and mining; the wholesale trades; and the lumber and furniture industries, retail insurance brokerage Aon Risk Solutions reported in its biennial Global Risk Management survey.
Constantin Beier, global head of Aon Analytics and chief commercial officer of Aon's Center for Innovation and Analytics, said that the survey results show how deeply the recession has taken a toll on risk preparedness.
"Throughout the economic recession, many organizations pulled in their oars--tabling research and development projects, decreasing spend on information technology and freezing hiring," he said in a statement.
Companies considered "risk ready" are defined as firms that have either a comprehensive plan to deal with the top-10 risks or have undertaken a formal review of the top risks they face.
Leading the gainers in Aon's latest survey was the chemical industry. It notched a 28 percent gain over the past two years, followed by the retail trades with a 15 percent jump, the professional services industry and the educational and nonprofit industry, each with a 13 percent increase. Rounding out the top five risk ready trades was the construction industry with a 10 percent increase.
Despite a drop in capital investment in the chemical industry due to the recession, research and development continued apace. The industry in 2009 spent $11.9 billion in research and development, up from $11.7 billion in 2008, the American Chemistry Council reports.
Sometimes, however, investments in research and development do not translate entirely to risk readiness. For instance, the Aon survey found the pharmaceuticals industry dropped 7 percentage points in its risk readiness over the past two years, yet the economic slowdown hasn't affected the research and development in the sector. The Pharmaceutical Research and Manufactures of America, which represents the nation's big drug companies, invested $67.4 billion last year in research and development, up $1.5 billion from 2009.
On the losing end, manufacturing reported a 17 percent decline in risk readiness, followed by real estate with a 16 percent drop, oil, gas and mining with a 14 percent decrease, wholesale trade with a 13 percent drop, and the lumber and furniture making industries, which lost 12 percent off its risk readiness quotient.
In a paper published last year, Jeff Dobbs, global head of diversified industries for KPMG, said that manufacturing companies were holding back from "executing bold changes to their supply chain structures."
"Sustained instability in such things as currency, commodity and fuel prices marks a new era in which volatility is likely to remain a permanent feature of the operating landscape," Dobbs wrote, in introductory comments to KPMG International's Global Manufacturing Outlook.
Risk exposures to the supply chain are considered serious threats to business interruption, and indeed business interruption risks rank No. 5 in Aon's top-10 chart. Commodity price risk is rated as No. 8, liquidity risk as No. 10.
The top-10 risks in this year's survey were the economic slowdown, regulatory changes, increasing competition, damage to a company's brand or reputation, business interruption, failure to innovate and meet customer needs, failure to retain top talent, commodity price risk, technology failures, and cash flow and liquidity risk.
The 2011 Aon report surveyed respondents from 960 organizations from 58 countries around the world. It is designed to help risk managers deal with emerging issues in their field. The last report was issued in 2009.
Organizations looking to improve their readiness to risk and secure their survival need to be investing and reinvesting in research and development and talent, said Beier.
May 16, 2011
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