Australia is well behind the US and Europe in terms of implementing ERM, but some sectors of the market are struggling more than others.
These are the findings of a survey of professionals held at the Actuaries Institute ERM Seminar, which found that global economic weakness and Australia's longevity crisis are the top two risks for the Australian financial services industry.
Overall, less than half of respondents thought that Australia's financial services industry was performing above average by international ERM standards (40%), while only 6% saw Australia as a leader in this field.
"Europe and the United States are more advanced with implementing ERM compared to Australia, so there is more work to be done in extending the reach and depth of ERM in Australian business," said Actuaries Institute CEO Melinda Howes.
So how can Australian financial institutions up their game? Thirty-four per cent of respondents believed that the biggest opportunity for improvement is in ensuring risk considerations influence strategy and business planning. Another 19% believe appropriate governance, review and adjustment of the risk model is needed.
"Australian financial services organisations need to ensure ERM practices are part of their company DNA. ERM means responding to your environment and optimising opportunities – not just downside protection. Risk considerations should be part of every business decision made by an organisation and should be fundamental to business strategy. This includes upside risk - for example, longevity risk presents super funds and insurers with some great opportunities," said Howes.
When it came to those industries who were struggling the most with ERM, 26% of respondents thought the risk culture within superannuation funds needed the most improvement, and another 26% thought the same for investment banks.
The three sectors of the financial services industry that got the seal of approval as having the most robust ERM practices, 38% of respondents voted for retail banks, 22% for general insurance companies and 19% for life insurance companies.
"Super funds and investment banks should consider how they can better build ERM into their culture from the ground up. There is lots of upside in these industries to improve risk management, and therefore business outcomes," said Howes.