Lambros Lambrou

Most companies understand that they must address risk to remain competitive and grow their business. However the real challenge for business lies in understanding and developing the tools and solutions necessary to succeed in the face of the ever-accelerating change and complexity of today’s risk landscape.

So said Lambros Lambrou, CEO of Aon Risk Solutions Australia, a risk management business of Aon plc (NYSE:AON) ahead of the tenth annual Aon Advanced Risk Finance Conference, which kicks off in Melbourne on 8 October. The theme of this year’s conference, “Ten Years of Risk Financing Insights”, will drive home Mr. Lambrou’s point, highlighting that risks which now appear high on many organisations’ agendas barely existed 10 years ago.

According to Mr. Lambrou the breadth and variety of risks businesses now face requires them to mitigate against a wider range of issues than ever before, from white-collar crimes to cyber risk.

Mr. Lambrou highlighted cyber risk as a significant hazard in a technology driven environment that often flies under the radar: “The potential ramifications of cyber risk, which has been described as “the asbestos of risk”, are widely underestimated, particularly here in Australia where we are demonstrably behind the curve when it comes to even a basic understanding of the issues. This applies not only when it comes to individuals’ privacy, but for the integrity of entire organisations. That includes major liability issues at the Board and Director level right through to the very real threat that cyber risk poses to undermining everyday operational capability.”

The underlying theme of the conference focuses on the importance of ‘big data’ in shaping the future of risk management and helping businesses address issues like cyber risk in a more sophisticated way.

“The risk management industry has become the poster child for resolving the vexed question of how to put big data to use, and in so doing has transitioned from being a relationship, intuition-based industry to one that is increasingly truly data driven,” said Mr. Lambrou. “As our industry plays a vital role in promoting global economic growth, we must use the data and technology available to us to evolve faster than our clients on their risk and people issues to support them in meeting the challenges in the future. This conference is an ideal forum in which to do this.”

In addition to looking at global and local insurance and reinsurance trends, the conference will examine another important economic issue: risk and people – and, more specifically, how they interrelate.

“An organisation’s people is its most valuable asset. People risk is often at the heart of our conversations with clients, and rightly so. Failing to properly mitigate against this risk will have catastrophic outcomes for any business,” said Mr. Lambrou.

The Aon Advanced Risk Finance Conference 2014 will highlight the following issues:

• Shareholder value and risk maturity – the strong correlation between a company’s risk preparedness and its financial performance
• Big data – developing tools to harness its power to make better risk management and financing decisions
• Global insurance and reinsurance markets – the effect of the flow of capital from alternative sources such as pension funds and the need to use this capital to innovate
• People risk – the so-called ‘soft science’ that hits hardest on the bottom line
• The psychology of the white-collar criminal
• The “asbestos” of today’s risk management world: cyber risk

The conference unites global specialists from Aon’s London, Chicago, Singapore, Ireland and Beijing offices to share latest industry trends and data and offer risk management and financing insights to an audience of leading Australian and multinational companies.

Conference sessions will be delivered by key Aon executives from across the world, in conjunction with some of Aon’s major clients, including Coca Cola-Amatil, Lend Lease and Tesco, along with a range of experts from academia, the insurance industry and the corporate world.

Mr. Lambrou concluded: “While organisations have a surplus of information, which is growing exponentially, they also often have a shortage of insight. Understanding that information as it relates to risk and how to mitigate it can have an extraordinary effect on the growth and bottom line fortunes of any organisation.

“Risk and insurance go hand-in-hand, but our conference agenda goes beyond the surface to drill into the hard data and trends that underpin the way every single industry should be looking at managing the countless risks they face.”

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Lambros Lambrou

Drivers of change in certain sectors of the insurance market in Australia are shaping a new set of business conditions – and those companies who wish to be winners should be prepared to act on them sooner rather than later, according to Lambros Lambrou, CEO of Aon Risk Solutions Australia, a risk management business of Aon plc.

This view was expressed by Mr. Lambrou upon the release of Aon’s third quarter Insurance Market Update for 2014.

Mr. Lambrou sounded a general warning against taking recent market data at face value, urging the insurance industry in Australia to look deeper rather than remaining content with the status quo.

“At first glance the data shows little variation from the past few quarters. Casual observers might conclude that we are in a ‘steady as she goes’ part of the cycle,” said Mr. Lambrou.

“However just because themes such as industry capacity and increasing competition are recurring, that does not mean the interplay of these factors will deliver recurring outcomes. On the contrary, some outcomes may come as a surprise to the industry – especially those who’ve become complacent and failed to look ahead.”

James Baum, Managing Director of Broking & Chief Broking Officer, Aon Risk Solutions Australia, cited some potential drivers of change for which the industry should be prepared. He also pointed out some of the underlying differences between today’s environment and more traditional scenarios – and their potential implications for the broader industry.

“Diversity of funding is one feature of our macro environment that should not be underestimated,” Baum explained. “The increasingly broad funding base of the insurance industry in Australia raises questions as to whether there would be the same level of withdrawal of capital from the market in the face of a catastrophic event as in the past. With insurance forming a smaller part of their portfolios there is less likelihood of new investors, such as pension funds, withdrawing their support. And that may well mean that we are moving away from the traditional cyclical market, with current market conditions likely to become the new norm.”

Another macro factor is the U.S. interest rate environment – more specifically, the likely global impact of an unexpected adjustment.

“Interest rates are priced in across all markets and any change would have profound implications on the shape of investment and markets in general – including the insurance market,” said Mr. Baum.

“Recent experience and the continuing economic uncertainty prevailing in the Eurozone and the UK are factors that we should remain aware of even in the face of more positive news from elsewhere. Failing to remain alive to the possibility of sudden unexpected downturns would be to deny the lessons of the past and the reality of today.”

In addition to the United States, Mr. Baum pointed to the role of China and its economy as a potential shaper of industry change – in particular in relation to property.

“Until recently the focus of the larger Chinese insurers and reinsurers has been on Chinese-owned assets,” said Mr. Baum. “However as they gain a better understanding of the geographies in which they operate – and that certainly includes Australia – they are developing an appetite for non-Chinese-owned assets. The upshot is that these insurers offer a very cost-competitive avenue, particularly where large amounts of capacity are required. It is likely that over time, as differences in business culture become better understood and managed, there will be a major move toward these providers.”

Mr Baum also named a number of micro or more industry- or sector-specific factors that should be factored into the insurance market outlook

• Heavier regulation in many sectors is leading to a greater compliance and risk burden – with corresponding effect on policies including for financial institutions and Director’s and Officer’s Insurance.
• Increased competition has reduced premiums in many instances, however insureds should be wary that this does not come with a corresponding reduction in the scope of the policies concerned. It’s a case of buyer beware.
• Competitive pressure is also leading to innovation in terms of both policy types and policy wording, as insurers work ever harder to attract and retain clients – a positive outcome for the industry and a direction in which it should continue if it is to thrive.
• Loyalty is becoming a watchword as falling premiums cause unprecedented numbers of insureds to “shop around”. Insurers who crack the “loyalty code” are likely to reap the benefits.
• Big infrastructure projects coming on-stream in response to moves at federal and state government level may also change the insurance outlook, especially in the project-specific Professional Indemnity space.

In conclusion, Mr. Lambrou highlighted the need for the industry at large to address its longer term, strategic challenges – and said that using hard data and information as reference points is the key to success.

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Lambros Lambrou

Aon Risk Solutions Australia named ‘Large Broker of the Year’ for the third year in a row at Australian Insurance Industry Awards

For the third year in a row, Aon Risk Solutions Australia, a business of Aon plc, has been named ‘Large Broker of the Year’ at the Australian Insurance Industry Awards, held in Sydney last week.

Lambros Lambrou, CEO of Aon Risk Solutions Australia, said the win is significant in its recognition of Aon’s ability to empower results for its clients:

“These awards are about the industry acknowledging its peers which makes the accolades all the more meaningful.

“We are focused on providing distinctive value to our clients across all our markets from sole traders through to large corporates . As the magnitude and complexity of risk continues to rise, Aon’s industry leading analytics and deep industry insights provides clients with a factbase to make better informed decisions around their risk management and insurance strategies. Our experienced broking teams have proven time and time again their ability to secure world class innovative and competitive solutions across local and global insurance markets. We are very proud to be awarded the Large Broker of the Year accolade for the third year in a row, a testament to our ongoing commitment to both our clientele and the insurance industry.”

Hosted by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and founding partner Asia Insurance Review (AIR), these are the peak awards honouring achievements in the Australian insurance industry.

On winning the ‘Large Broker of the Year’ category, ANZIIF cited Aon’s strongly client-driven activities, “with the firms ‘Client Promise’ ensuring an emphasis on personalised service plans in order to meet individual client needs.”

The judges also noted “Aon’s proven customer satisfaction figures and continuous review of client services as integral to securing the award, as well as its efforts to educate clients. The firm’s success in providing risk management assistance was also highly regarded.”

“The Large Broker of the Year Award recognises the enormous efforts that our colleagues go to in order to exceed client expectations and lead the industry,” said Mr. Lambrou. “Our focus is always on connecting with our clients – understanding their needs and delivering the full Aon capability to create exceptional outcomes.

“From ‘creating the insight’ to leading the market, we continuously raise the benchmark on service, client experience and innovation – to empower results,” said Mr Lambrou.

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Lambros Lambrou

Regulatory and legislative change has assumed the prime position as the leading risk for Australian and New Zealand businesses in 2013/2014, followed by concern regarding deteriorating local economic conditions and the impact of people risk.

These are the major findings of Aon’s (NYSE:AON) 12^th annual Australasian Risk Survey, which provides a snapshot of the risk management practices of 380 businesses operating in 15 key industry sectors, including 23 of the ASX top 100 Australian companies.

Top 10 Risks to Australian and New Zealand Businesses:

1. Regulatory & legislative change
2. Local economic conditions
3. People risk
4. Increasing competition
5. Brand & image
6. Global economic conditions (new in 2014)
7. Human resources
8. Weather and natural disasters
9. Failure to innovate
10. Business interruption and supply chain risk

Speaking about this year’s survey, Mr Lambros Lambrou, CEO of Aon Risk Solutions Australia, said that the elevation to number one of regulatory and legislative change, up from third place last year, was a reflection of the growing burden and pace of change and the costs and effort companies must undergo to address it.

“Regulatory and legislative change has been moving up consistently through the top ten risks over the past few years,” Mr Lambrou said. “Legislative change adds cost pressure to a company’s bottom line in many ways, both directly where it results in more restrictive working conditions and potential additional fines and penalties and indirectly, for example in compliance costs.”

In this environment, Mr Lambrou said it was more critical than ever for organisations to positively manage change, remain flexible and attuned to the evolving landscape: in particular, he added, to the implications of change both for the day-to-day running of businesses and the bigger governance and Board-level picture.

“Having the systems in place to support effective risk management is increasingly a determinant of a business’ ability to succeed in fast-moving and challenging times,” said Mr Lambrou. “And not all such systems are created equal.”

Ranked second, for the second consecutive year, is concern about local economic conditions. Australian business sentiment continues to languish, fuelled in part by predictions of a slowdown in economic growth over the next decade. And it’s not just the local economy that has companies worried. Concern about global economic conditions came in at number six, further highlighting that local business clearly see the global marketplace as having a more significant impact on their business success.

Mr Lambrou said that the strong Australian dollar, challenging trading conditions and the high cost of employment in this country have all combined to force the withdrawal of a number of high-profile major manufacturers from Australia.

The fastest mover in the top ten this year, people risk, moved up eight positions, from outside the top ten, to third place in the Aon survey.

“There are a number of reasons for companies’ increased concern about people risk,” Mr Lambrou explained. “The cost of Workers’ Compensation insurance is increasing and has led to a greater focus on injury prevention and early intervention. Harmonisation of work health and safety laws across most states and territories has also increased awareness of the issue. The need to manage these increasing costs is a clear business imperative. Companies that positively manage their people risk issues by taking specialist advice can significantly reduce costs.”

Other big movers this year were business and supply chain risk, which fell six places to number ten on the back of significantly fewer natural disasters than in previous years. Brand and image concerns fell to their lowest level in the 12 year history of the Survey, ranking at number five in 2014. Mr Lambrou said that this fall was more likely the result of intensified competing risk concerns, than a gauge as to the decreasing relevance to organisations of their brand and image.

The overall view on insurance pricing among respondents was positive. Most said they expected the cost of premiums to remain stable or decrease slightly, based in part on surplus capacity and strong insurer competition.

Mr Lambrou said that it was of real note that the top ten business risks included a number of external concerns that are largely uninsurable. These include local and global economic concerns, and increasing competition at number four. At the same time, the median total cost of insurable risk fell marginally.

“Companies are under pressure to reduce costs and that includes their insurance spend. As a result they are looking for evidence of the bottom line benefits of an effective risk management strategy. Many are looking at alternative, non-traditional risk transfer solutions, such as captives, weather derivatives, catastrophe bonds and insurance linked securities, just to name a few.”

Mr Lambrou concluded by citing recent research conducted by Aon and the Wharton School at the University of Pennsylvania.

“There is a clear and direct correlation between risk management performance and favourable financial results when analysing return on shareholder equity. Developing innovative and robust risk management strategies therefore makes extremely good business sense.” 

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Assessing risk: Aon’s 2012/13 Australasian Risk Survey

Rapid moves in technology and climate change pose a whole new set of challenges

An evolving understanding of a significantly changed operating landscape is leading to changes both in the way organisations define risk – and the way they address it.  In global terms, Australian and New Zealand companies are ahead of the pack, taking a more structured approach to tackling a growing number of issues than many of their international counterparts.

These are just a few of the deeper findings of the eleventh annual survey involved 133 Australian and New Zealand companies across 19 industries. And a number of its findings demonstrate a focus on entirely new risks.

“It is highly interesting to see how innovation, or a lack thereof and technology systems failure have now entered the top 10 risk concerns for Australasian organisations,” said Jason Disborough, Managing Director, Global, for Aon Risk Solutions Australia.

“In an economic environment where organisations are fighting for growth, we are seeing that a general ability to adapt and respond strategically to change are more critical than ever.”

Mr Disborough went on to cite a host of new challenges arising from changed technological, regulatory and environmental factors that barely even made it onto the risk landscape a few years ago.

“Technology has brought with it an enormous change in the way we do business – which translates directly to a whole new set of risks that we are only just beginning to grapple with, for example,” he said.

Even aside from the impact of technology-fuelled social media on brand and image – which ranked as the number one concern in the Australasian survey – other major technology-related issues such as lack of innovation, technology or system failure and lack of technology infrastructure to support business needs, are all creeping into the top 20 concerns – and some much higher.

Mr Disborough said that, given these technology-based concerns, Aon was surprised to see that Cyber Risk did not make the top 20 rankings – especially in the face of upcoming privacy and other legislative change likely to call into question the integrity of many organisations’ information management systems.

“I think it’s fair to say on the basis of our own research and consultancy that many organisations are underdone when it comes to cyber risk. We expect a growing move to address this once there’s greater awareness of the practical impact of privacy laws and how they mesh with new technology such as cloud-based systems,” he said.

Liability issues arising from other forms of regulation are also playing an increasing role in reshaping the risk landscape.

“Risks for company directors are almost unrecognisable from what they were 10 years ago, with sanctions from fines through to incarceration now on the table for a range of breaches across numerous areas, in particular occupational health and safety,” Mr Disborough added.

He also flagged that while the higher ranking of natural disasters as a risk was understandable due to events such as the Christchurch earthquakes, and floods and bushfires fires in many parts of Australia, these may well continue to grow alongside concerns about climate change and its ultimate long term impact on our living and working environments.

While there are undoubtedly significant challenges ahead, the survey showed that, in global terms, Australian and New Zealand companies are increasingly well placed to address them.

“It’s heartening to see that despite strong economic headwinds, Australasian organisations continued to increase their investment in risk management and risk mitigation at above global averages,” he said.

“This year, for example, 70% of organisations surveyed reported that they have a formal risk management or insurance department, which is 10% higher than last year’s survey, and 12% higher than the global average of 58%,” he explained.

Mr Disborough also pointed out that research shows a positive correlation between advanced risk maturity and the ability to add greater shareholder value for organisations. A separate study conducted by the Wharton School of Business and Aon from 2010–2012, identified that those organisations with the highest Risk Maturity Rating (5.0 – Advanced) exhibited a stock price volatility 50 percent lower than the group of organisations with the lowest Risk Maturity Rating (1.0).

Mr Disborough concluded by saying that the aim of the survey had always been to provide Aon clients with deeper insights into risk management and risk financing trends.

“The fact that the survey continues to uncover new risks really reinforces the need to remain vigilant and open to the broader implications of the rapidly changing environment in which we operate.”

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