WEF 2012: talking the talk…all the way to Dystopia


WEF top Five Global RisksOn paper a great annual event. Something that SHOULD have real “punch”…but what happens to all the “thought leadership” when the collective wisdom spills out into the real world? Simple: not a lot!

Here is a single example of what I am talking about: Top 5 Global Risks 2012 – “Major systemic financial failure”. Even in past years, pre-crisis, the “Economic Domain” has topped the list but, people at the top of their profession, in Finance and Risk Management, still display an ignorance of the nature of systemic risk! Worse than that…,despite a stack of research from a wide variety of disciplines and a pile of papers from highly respected Academics and subject matter experts, they STILL have a “business as usual” mentality when it comes to strategic and individual risk decisions!

Is it any wonder then that, despite a high-level (CxO) understanding of some of the key issues affecting their business, the FAILURE of those directly involved in “managing” financial and insurance risk, appears to have resulted in “Fewer CEO’s plan to modify their approaches to managing risk”!!! 

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Screenshots from: PwC

2 Responses to WEF 2012: talking the talk…all the way to Dystopia

  1. Hadley says:

    I love the topic and I do believe David, that most people in the arena of risk management and even Corporate Management are so involved in the day to day proceedures, that they are not looking forward or backward into systemic changes and dynamics to the business. Our business culture for years has been to over perform under budget.Cut costs where you can mentality. For us insurance folks this has affected our actuaries and reports. The intangible risks will become more and and more a topic as we move in that direction.

  2. Thanks for stopping by Hadley.

    Sadly, I agree that most are too busy BUT that is known and precisely why insurers have, such as, “Strategic Risk” capabilities. Even if they don’t pass that insight onto the broker community directly (mistake number 1) they MUST reflect “macro” issues in their underwriting strategy, indirectly…but don’t (mistake number 2)! They carry on as if the world hasn’t changed and the current model is still adequate:

    Patently it is not and, to date, no-one has displayed the ability to truly INNOVATE to create a new model! We have seen innovation in insurance but not of the “creative destruction” variety: Innovation with a capital “I”.

    What we have seen is a plethora of innovative means by which insurers improve their margins at the expense of the customers – added complexity. Hence the “self-similar” structures, strategies and products that have contributed to an unhealthy and overly-competitive market engaged in a price-led race to the bottom. The source of a major disconnect when customers with a desirable risk profile are less likely to be sold to (based upon price). In fact are reflecting buying trends in other sectors i.e. a flight to quality!!!

    The issues have been identified. It is clear that significant damage has already been done but the same mistakes are still being made and further problems being added on a daily basis. “Tangible” risks are not the threat but the intangible…or unseen “risks” that, unidentified and untreated, add to uncertainty, that, when disaster strikes, is (wrongly) labelled as unforeseeable.

    The, apparently subtle, differences between unseen/unforeseen and unforeseeable only become apparent when the implications are manifest in the impact of “high impact” events that are then (conveniently) labelled as “Black Swan”!

    If you haven’t already read them, for further insight, I would recommend the “Roads to Ruin” and “Complexity: structural engineering for business survival ” articles: links above.

    Best

    David

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