Aon/Wharton School Report Uncovers New Insights on Relationship Between Risk Maturity and Financial Success
Report takes first look at Directors and Officers premiums in relation to risk maturity...
Aon, in collaboration with the Wharton School of the University of Pennsylvania, released its fifth edition of the Aon Risk Maturity Index Insight Report. Findings reinforced a direct relationship between strong risk management practices and superior operating performance for organizations. New this year, the report uncovered a relationship between improved Directors and Officers (D&O) premiums and risk maturity as well as examined the relationship between risk maturity and organizational resilience in the context of Brexit financial market shock scenarios.
Organizations with a higher overall Risk Maturity Index score paid significantly lower premiums for D&O insurance; specifically, a 10 percent increase of risk maturity correlated to a 3.8 percent improvement in D&O premiums. Organizations with lower premiums were all found to have greater transparency of risk communication, stronger risk identification of existing and emerging risks, a more formal process of gathering risk information, as well as sophisticated methods of risk analysis.
“Directors and Officers are increasingly challenged to be aware of and understand the key risks their organizations face and how these risks are being managed,” said Christopher Ittner, professor of accounting for The Wharton School, University of Pennsylvania. “Reductions in insurance premiums are yet another potential financial benefit for organizations exhibiting more mature risk management processes.”
This year’s Risk Maturity Index Insight Report also reinforced past correlations of higher levels of risk maturity to higher levels of stock price performance as well as higher levels of risk maturity to lower levels of volatility. The Index also took a closer look at Brexit financial market shock scenarios, confirming a direct relationship between risk maturity and organizational resiliency as measured by the impact of Brexit on an organization’s stock price,
“Well designed and sustainable risk management practices continue to be a strong defense against an uncertain external environment,” said Aon’s Kieran Stack, chief commercial officer, risk consulting U.S.. “Strong risk management principles and practices, implemented with consensus across and among an organization, can contribute to higher returns, even during significant market events. Aon’s Risk Maturity Index is a valuable resource for companies, helping better identify and manage their organization’s enterprise-wide risk profile.”
Developed by Aon and the Wharton School of the University of Pennsylvania, the Aon Risk Maturity Index was created in 2011 as a tool to assist senior finance, risk and legal professionals in identifying and addressing critical areas of concern in their risk management programs. The Index is an innovative platform that assists organizations in understanding the value of risk management in strengthening operating performance and/or reducing volatility by empowering them with insights and guidance on best practices tools and techniques to enhance their risk governance and risk management practices.