Way back in 1970, two mathematicians, Earl Isaac and Bill Fair, invented a system for scoring credit ratings. It is now ubiquitous, making lending decisions much simpler. Now Aon, the $11.3 billion global insurance broker and risk consulting company, has come up with a proprietary Risk Maturity Index that it says can help its clients analyze, measure and improve their risk management performance.
The basic idea resembles the credit rating score: to quantify a company’s risks and the effectiveness of its risk management processes objectively.
“When we’ve talked with clients, everyone is doing some kind of risk management, and they want to know, ‘How am I doing compared to the competition or in terms of S&P coming in [to assess risk management efforts],’” says Theresa Bourdon, group managing director at Aon Global Risk Consulting, who led the project. “But not everyone wants to hire a consultant.”
The Risk Maturity Index aims to “automate the first phase of the consulting engagement,” Bourdon says.
In developing the index, Aon partnered with the University of Pennsylvania’s Wharton School, which helped analyze the scores and correlate them with economic performance. “The Wharton researcher found a strong correlation between higher index scores and lower price stock volatility,” Bourdon reports.
The Risk Maturity Index looks at 10 key characteristics, which are examined via 125 questions that Aon says can be answered online in half an hour, resulting in a rating of 1 to 5. After further evaluating the questionnaire, Aon provides the company with a more detailed report that includes comprehensive scoring on 40 specific components of risk. Since the index’s launch last year, companies on five continents have used it and demand has been growing at 10% a month, says Bourdon.
Aon says the Risk Maturity Index helped a major Asian holding company understand the risk management frameworks of its operating subsidiaries, assisted a large company in Eastern Europe to understand risk management best practices within its units, and allowed a regional healthcare organization in the U.S. to better understand its strengths relative to industry peers.