Conserving and protecting brand and image is the biggest concern among Australian businesses, according to a recent study.

Aon’s total cost of insurable risk survey found that brand and image remained the top risk issues for Australian firms in 2004, but below that there were several changes in what industry sees as the most pressing risk issues.

Corporate governance was the second biggest risk, with regulatory risk rounding out the top three. The biggest shift in attitudes, however, concerned risks to physical assets and systems. In 2004, they were ranked as the second most pressing risk issue, but this year, they slipped to eighth position.

According to Jason Disborough, divisional manager, corporate insurance services at Aon, increasing fears over reputation are being driven by recent high-profile corporate failures and the reputational fall-out for all involved.

“Damage to corporate reputations has caused many financial and other issues for multiple Australian and international companies,” Disborough said. “High-profile corporate failures such as Ansett, HIH, OneTel, Pan Pharmaceuticals and James Hardie Industries serve as poignant examples of the damage caused to an organisation’s bottom line when reputation or ‘brand and image’ is affected.”

Regulatory risk, meanwhile, was not rated in the 2004 study, but this year shot up to third spot. Ongoing compliance responsibilities were clearly making their presence felt, Disborough said.

“The recent introduction of the Australian Stock Exchange Best Practice Recommendations on Corporate Governance, the residual effect of Sarbanes-Oxley and the forthcoming introduction of International Financial Reporting Standards are all variables that would have influenced respondents in ranking compliance and regulation risk concerns high on their agendas,” he said.

Aon’s study also found that risk transfer costs are falling. Risk transfer costs comprise 71 per cent of the risk dollar being spent on the total cost of insurable risk, a sign that the total cost appears to be decreasing. Moreover, risk retention costs are also easing down from 16 per cent of the risk dollar spend in 2004 to 11 per cent this year.

“Risk retention, however, has significantly increased from 47 per cent from last year,” said Disborough. “Risk retention is used to a significantly higher degree than the other available options, whereas other funding mechanisms such as internally managed risk funds and captives, seem to have been used to a lesser extent.”

Top 5 risk concerns

2003/04 2004/05

Brand and image Brand and image

Physical assets /systems Corporate governance

Human resources Regulatory

Legal Legal

Corporate governance Systems

Source: Aon Total Cost of Insurable Risk Survey 2005