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Prosper in a world full of risk

15 July 2015Jonathan Faurie

Foresight is never an exact science. We go about our business and meet clients every day hoping to avoid the challenges and risks that are usually associated with doing business.

We all have times when our businesses have a few challenges. The key to avoid this is to try and look ahead and to identify the possible risks and challenges which could impact on your business going forward.

Top contenders

Global insurer AON conducts a Global Risk Management Survey on a biannual basis in an attempt to identify these risks. The purpose is to assist companies and brokers to expand their business.

The top ten risks that will affect companies in the market as identified by the 2015 survey are:

-               Damage to reputation or brand
-               Economic slowdown
-               Regulatory/legislative changes
-               Increasing competition
-               Failure to attract or retain top talent
-               Failure to innovate or meet customer needs
-               Business interruption
-               Third party liability
-               Cyber crime
-               Property damage

Dragged through the mud

While the AON survey does look at a range of industries that these risks will pertain to, one of the industries that it pays particular attention to is the insurance industry. According to the report, damage to reputation and brand is the top risk facing the industry.

This risk is inherently linked to the rise of the technology revolution and the reality of living in a connected world. In the 1980s, we were lucky if there was one computer per household, now there are multiple devices per person living in a household.

At the launch of the survey, AON South Africa CEO, Terrence Williams, tried to paint a picture as to the true effects that this is having on the world. He pointed out that there are currently an estimated 18.2 billion technological devices in the world that are able to connect to the internet. By 2020, this is expected to increase to 50 billion devices.

This is a major risk for businesses that are operating unethically or are not living up to customer expectations. In the past, if a customer was unsatisfied with a business, the first person they would approach would be the manager of the business to resolve the issue. In this way, the issue was largely contained. In the age of technology, the manager finds out about a company complaint via social media after hundreds of people have seen it. We need to be aware of the impact technology is having on the industry and the influence it has on brand reputation.

The regulatory heavyweight

According to the survey, regulatory change remains a top issue and can have a pronounced impact on a company’s bottom line. Regulations that were originally designed to help businesses mitigate risks are now being perceived by businesses around the world as a key industry risk.

The cost and influence of regulations on businesses are such that even marginally incremental regulatory changes could add tremendous costs to a corporation. This can create uncertainty in the expansion of your business or expanding your company.

The situation is a bit more pronounced in South Africa. One can hardly describe Treating Customers Fairly (TCF), the Retail Distribution Review (RDR) and Solvency Asset Management (SAM) as marginally incremental changes to the financial services sector. We are only just getting used to TCF and we are not quite sure how the chips will fall when it comes to RDR as the Financial Services Board has not made a final decision on its position on the matter.

Innovation dark horse

One of the factors that set Steve Jobs and Bill Gates apart was their foresight on the market and their ability to see what would influence the market ten years from when they established their companies.

Nic Kohler, CEO of Hollard, says, “Technology is already having an influence on the insurance industry. One of the biggest innovations of the past five years has been the rise of the driverless car. Currently, there are 400 driverless cars licenced to operate in the state of California in the USA and all major car manufacturers have indicated that within the next five years there are major plans to release more of these vehicles worldwide.”

That is the first issue; the next issue the rise of Uber. The Uber business model is growing at such a rapid rate that it will soon be the premier taxi service in the world. Because of their cheap rates, people will think less about purchasing their own vehicle if the costs to run that vehicle exceed the cost of using Uber on a monthly basis.

The third base of the potential Bermuda Trianglefor insurers is if these Uber taxies are driverless vehicles. As Kohler pointed out, driverless vehicles have no owners and are involved in fewer accidents. This will impact both short-term insurers and medical schemes.

Companies in the financial services industry need to study technological changes and predict the trends that will influence society in the future. They then need to design products to fit into these changes.

Editor’s Thoughts:
In an environment where new business can be difficult to come by, these challenges can become particularly acute and can have a greater effect on our business than we realise. Have we got the necessary measures in place to overcome these challenges? Please comment below, interact with us on Twitter at @fanews_onlineor email me your thoughts jonathan@fanews.co.za.

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