Managing Costs - Decision Making in Complex and Volatile Times

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Managing Costs in Continued Uncertainty

The COVID-19 pandemic has created significant financial challenges for organizations across all industries. As the crisis started, leaders focused on a review of non-compensation costs and managing financial volatility with pension plans. Moving forward, organizations will need a continuous response strategy not only for immediate changes and needs, but also with a long-term outlook that develops and changes as the pandemic continues to unfold. However, there are regulatory, talent, and change management considerations to consider.

Manage the Total Cost of Risk

Control Healthcare Costs

Maximize Value and Innovation

Audit Retirement Plan Risks

Revisiting Business Strategy

Manage the Total Cost of Risk

In this time of unpredictable volatility, risk is one of the biggest areas of potential cost for your business. It’s critical to have a clear, data-driven strategy to assess, mitigate, and manage the total cost of risk (TCOR) — the amount of retained losses, risk transfer premiums, collateral and frictional costs.

Control Healthcare Costs

In North America, the average gross medical trend rate is 6.4%, significantly outpacing the rate of inflation. As healthcare budgets are one of the largest expenses you face, this year will require an intense focus on managing costs — with even more challenges due to the severe swings in healthcare visits and activities because of the pandemic. Healthcare is also one of the top employee costs, limiting the amount they may be able to invest in retirement savings.

While the initial shock of the pandemic created extreme challenges for employee mental wellbeing, the ongoing, nonlinear nature of the continued threat of COVID-19 brings its own set of challenges. The global economy loses about $1 trillion USD per year in productivity due to depression and anxiety.

Employees will be coping with lifestyle adjustments, managing fear and anxiety over the threat of illness or economic fallout, isolation, reduction in physical activity, and stress as children return to school this fall.

Perform an Organizational Risk Assessment

A recent study by Ford found that the impact of loneliness on physical health was comparable to obesity or smoking 15 cigarettes a day.

Learn more about managing and projecting the financial impact and costs — related to medical care, worker’s compensation, and time away — of the new normal on your organization with Aon’s COVID-19 Employee Impact Model.

Manage Pension and Defined Contribution Plans Cost

In Q1 of 2020, S&P 500 Pension Plans lost around $120 billion, according to Aon’s S&P 500 Risk Tracker. The continued market volatility will likely impact both short and long-term pension plan costs, including cash funding, financial statement expense, and PBGC premiums. Costs will also continue to be a factor in Defined Contribution Plans, as well.

Assess Current Talent

Plan the Future Workforce

Audit Retirement Plan Risks

In Q1 of 2020, S&P 500 pension plans lost around $120 billion, according to Aon’s S&P 500 Risk Tracker. The continued market volatility will likely impact both short- and long-term pension plan costs, including cash funding, financial statement expense, and Pension Benefit Guaranty Corporation (PBGC) premiums. Costs will also continue to be a factor in defined contribution plans, as well.

Learn More About Cost Management

With a cross-functional perspective of the various risks, costs, and opportunities for organizations navigating this difficult time, Aon can uniquely help you manage the total cost of risk, control healthcare costs, and reduce pension liabilities with both short-term and long-term needs in mind.

Explore Our Research and Insights

According to the 2019 Global Risk Management Survey, 57% of participants say they do not invest in TCOR measurement. Natural disasters and other substantial risks require you to have an ongoing and holistic assessment of risk that accounts for recent changes and communication with business, HR, and other relevant advisors.

An organizational risk assessment highlights significant risks that your business currently faces or may encounter, including employee health, supply-chain disruption, and new government regulations.

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Strengthen Your Protection Against Cyber Risk

Embracing the Concept of a New Normal

Supporting employee mental & emotional wellbeing

Embracing the Concept of a New Normal

What standards do we need in place to approach this next phase of in-person work, travel, and meetings for the safety of everyone?

How do we share best practices so that data and real-time lessons can guide the way while taking some guesswork out of decisions?

Where and when can we add travel, and what will that look like for our organizations in the future?

Balancing the safety of people and reopening society is on the minds of many organizational leaders. Aon, along with Walgreens, Ulta Beauty, Motorola, and others, has banded together to begin what we’re calling a “New Better” to roadmap how we work, travel, and convene. We’re working to understand several issues as part of this initiative.

If you’re a defined benefit plan sponsor, you may face increased demands for pension contributions and additional capital or experience unexpected pension costs due to employees being made redundant or taking early retirement. It is time to at least explore legally available options based on region.

Analyze HR Costs

Understand the opportunities and challenges for pension plans

In Canada, this may involve renegotiating funding plans, deferring cash commitments, or using contingent assets in Canada

In extreme cases, you may wish to consider closing some defined benefit plans to accrual — in which case careful employee consultation and communication would be needed.

26%

39%

Plan the Future Workforce

Use your assessments to identify pivotal talent and make necessary adjustments to optimize the efficiency, effectiveness, and innovation of your workforce.

of HR leaders can pinpoint the roles most critical to their organization’s ability to navigate disruption.

73%

Reducing Defined Contribution Plan fees

While those organizations with defined contribution plans carry less risk and capital demands than pension plans due to their minimal impact on the balance sheet and related obligations, there are still opportunities to reduce fees and overall plan costs.

Take advantage of the scale and competition in the marketplace to drive lower fees across these plans.

Understand the Opportunities and Challenges for Pension Plans

Reducing Defined Contribution Plan Fees

Perform an Organizational Risk Assessment

Identify the key scenarios that could affect your business and invest in control and response measures that reflect your exposure.

Strengthen your protection against cyber risk

As the pandemic has led to more employees working remotely, cybercriminals are taking advantage of these new opportunities. While the use of cyber risk assessments has risen 16% since 2015, only 59% apply any formal process to identify and assess cyber threats.

Cybercrimes can cause direct and indirect damage to your bottom line, through class actions, fines, and investigative costs, and reputation damage that can affect revenue or market share

Data breaches can also cause ratings downgrades that shape investors’ perceptions of your business and increase borrowing costs

Understand the Opportunities and Challenges for Pension Plans

In Canada, this may involve renegotiating funding plans, deferring cash commitments, or using contingent assets in Canada.

Reducing Defined Contribution Plan fees

Take advantage of the scale and competition in the marketplace to drive lower fees across these plans.

>50%

Explore Our Research and Insights

Supporting employee mental & emotional wellbeing

Embracing the Concept of a New Normal

Understand the opportunities and challenges for pension plans

In the U.S., this could include filing for relief from contributions mandated by law.

In Canada, this may involve renegotiating funding plans, deferring cash commitments, or using contingent assets in Canada

Reducing Defined Contribution Plan fees

Take advantage of the scale and competition in the marketplace to drive lower fees across these plans.

Strengthen your protection against cyber risk

Perform an Organizational Risk Assessment

Understand the Opportunities and Challenges for Pension Plans

Reducing Defined Contribution Plan fees

In the U.S., this could include filing for relief from contributions mandated by law.

In extreme cases, you may wish to consider closing some defined benefit plans to accrual — in which case careful employee consultation and communication would be needed.

Consider specifically the portion of the investment or administrative fees the organization is paying, and whether there may be better alternatives such as per-participant or asset-based fees.

Supporting employee mental & emotional wellbeing

Embracing the Concept of a New Normal

In the U.S., this could include filing for relief from contributions mandated by law.

In extreme cases, you may wish to consider closing some defined benefit plans to accrual — in which case careful employee consultation and communication would be needed.

Consider specifically the portion of the investment or administrative fees the organization is paying, and whether there may be better alternatives such as per-participant or asset-based fees

Explore Our Research and Insights

Source: Aon’s 2019 Global Risk Management Survey report.

Source: World Health Organization

Source: Aon’s 2019 Global Risk Management Survey report.

Source: World Health Organization

Decision Making in Volatile Times

Protect People and Assets

Protect the Balance Sheet

Maintain or Increase Revenue

Cost Management

Revisit Business Strategy

EN / FR

Optimize your business strategy

Optimize Your Business Strategy

Decision Making in Volatile Times

Protect People and Assets

Protect the Balance Sheet

Maintain or Increase Revenue

Cost Management

Revisit Business Strategy

EN / FR