articles 1 to 13 of 13Risk Modelling: Is the Response to the New Complexity Really So Simple?
Risk modelling requires a radical revamp for the post-GFC economic environment. Oddly enough, the new complexity seems to demand a more simplistic approach to factoring in uncertainty. Focusing excessively on detail may increase the risk of missing the obvious, warns Andries Terblanche, a professor at the Australian School of Business and chair of financial services at Big Four accountancy firm, KPMG. Remodelling risk is controversial and Terblanche admits that a single, comprehensive model remains elusive. Meanwhile, as instability prevails across the global economy, debate over rethinking risk continues.
From: October 16, 2012 Insurance Taxes: Why Australian Householders Go Undercover
Following a sequence of natural disasters, insurance cover is a burning hot topic Australia-wide, not least because taxpayers are now paying the one-off flood levy on their latest return. Almost one in four Australian residential properties has no house or contents insurance cover. For property owners, the disincentive is double-priced premiums overloaded with taxes, duties and levies, says Michael Sherris, a professor of Actuarial Studies at the Australian School of Business. While alternatives such as mandatory home insurance and a national disaster insurance scheme are being debated, experts are contemplating a mutual with lower capital needs for the short term.
From: September 27, 2011 The Making of a Daredevil CEO: Why Stock Options Lead to More Risk Taking
Stock options are a critical element of CEO compensation -- making up one quarter of total pay for executives these days. But what does that mean for the risk profiles of the companies those CEOs lead? A recent paper by Wharton professor Todd A. Gormley studied this issue by examining what steps CEOs took when hit with a sudden increase in business risk. The finding: Stock options do have an effect on risk taking -- which, Gormley argues, "should be factored into compensation structure by boards of directors."
From: July 19, 2011 Disasters Down Under: Why Reinsurers are Heeding the Call of Catastrophe
From earthquakes to extensive floods and a cyclone, the recent sequence of disasters in Australia and New Zealand has left thousands of people reeling. Insurers and reinsurers were also rocked by extensive claims, but reports that companies now may shun South Pacific markets are greatly exaggerated, not least because the catastrophes raised public awareness of the need for insurance. With their sights on new business and greater profits, big reinsurers are actually moving down under. And, Michael Sherris, a professor of Actuarial Studies at the Australian School of Business, predicts it's just the beginning. More newcomers can be expected as the industry adjusts its models and finds ways to recapitalise.
From: June 21, 2011 Resources Contracts: Mining for Profits After Force Majeure
Has the Queensland flood catastrophe handed resources companies a welcome advantage? "Force majeure" – a legal let-out clause that allows sales contracts to be suspended or cancelled without penalty under extreme circumstances – is now urgently up for review. More than a handful of major coal producers declared force majeure when the floods hit. With commodity prices skyrocketing, companies have discovered they can make more by selling coal on the spot market than under pre-existing arrangements. As a result several are reportedly renegotiating contractual terms. Lawyers say force majeure is often overlooked. And, as extreme weather events are arguably becoming predictable, the climate for these legal clauses is also changing.
From: March 29, 2011 Deferring Retirement: Switch on to Working Until 75+
Ignorance is definitely not bliss when it comes to retirement saving. Despite the wake-up call of the global financial crisis, research shows very few people are clued up on just how they will pay for increasingly longer lives. A comparative international study shows that women and low-paid workers are most likely to face old age under-funded. But, according to Olivia Mitchell, an insurance and risk professor at the Wharton School, it's time for everyone to defer retirement plans – perhaps to age 75. Forget about putting your feet up, she says, instead opt for a more comfortable lifestyle and staying mentally astute.
From: March 15, 2011 Catastrophe Bonds: Sharing the Risk of Natural Disasters
The cost of the devastation from Australia's recent natural disasters is still being counted. Floods in Victoria and severe storms on both sides of the country, along with the earthquake damage in New Zealand, have impacted on the lives of thousands. Strangely enough, these events often occur in clusters which means insurers are also hard hit. But, these days insurance companies can transfer their risk to the capital markets through catastrophe bonds. With these relatively new assets increasing in popularity, Julian Lorkin of Knowledge@Australian School of Business asks Morton Lane, head of the financial engineering program at the University of Illionois, about insurers' latest means of passing on risk.
From: September 21, 2010 Bribery and Corruption: How Good Guys Go Bad
Australia has been slow to act as a signatory to the Organisation for Economic Co-operation and Development's Anti-Bribery Convention. That's despite mounting evidence showing Australian organisations have engaged in corrupt practices offshore. Bribery is much decried but little understood. New research from the Australian School of Business shows how employees become willing participants in corrupt systems, and even rationalise their criminal behaviour as normal. To stamp this out, anti-corruption authorities and managers need to understand their thinking.
From: September 07, 2010 Financial Planning: What Is the Right Price for Advice?
In an industry that has relied predominantly on commissions, setting the right price for financial advice may be fraught with difficulty. Following the federal government's ban on commissions for retail investment products, financial planners face a disconnect between the realistic cost of providing comprehensive advice, and what people think they should pay. In place of commission-based payments are three likely methods – a flat fee, a percentage-based amount or the more precarious pay-by-the-hour model. But with clients choosing a needs-only service, the number of planners is predicted to halve within 15 years. Experts suggest the key for clients and advisers is finding their perfect match.
From: July 13, 2010 Fraud Epidemic: Revealing the Corporate Underbelly
Several reports have analysed the “epidemic of fraud” spreading through Australian companies. It’s been driven in part by performance-based remuneration and by cost-cutting that has weakened controls in the downturn. More often middle managers with the rights to authorise transactions have been the perpetrators, creating a boom time for forensic specialists. But the cheapest way to counteract fraud is to prevent it, says Peter Roebuck, an accounting professor at the Australian School of Business. In addition, organisations are wising up to managing the risks.
From: May 18, 2010 Retirement Investment: Gambling on a Future
For a nation of gamblers with high exposure to the stock market, the risks surrounding retirement investment decisions are rife. According to the Organisation for Economic Co-operation and Development (OECD), Australians are the most aggressive investors in the world, but the biggest threat to their retirement savings is more than behavioural. It’s in the structure of the existing superannuation system that places risk firmly in the hands of the retirement saver. Suggested alternatives, however, may also inhibit wealth building.
From: April 08, 2010 Risk management: The Slow Rise of the CRO
A new approach to risk is required following the global financial crisis, but organisations outside of the financial services sector are slow to appoint senior risk executives. Chief risk officers [CROs] remain thin on the ground, leaving chief financial officers with the responsibility of keeping an eye out for threats, according to experts at the Australian School of Business. Awareness of risk should be part of organisations’ DNA. Old-style risk management relied heavily on technical models, bubble charts and lists but the new emphasis is on critical thinking and plotting potential scenarios.
From: April 07, 2010 Micro Insurance: A Safety Net With Too Many Holes?
Unlike micro lending -- the better-known side of micro finance -- micro insurance has been a hard sell among the world's poor. The reasons why include a lack of understanding of how insurance products work, a general reticence on the part of poor populations to part with their meager financial resources, badly designed products and a shortage of localized risk management knowledge among providers. What needs to happen for micro insurance to prove that it can be both socially beneficial and economically viable?
From: September 30, 2009