Revisiting “networked networks”:: setting the scene for epic failure!


To say that there are those within the insurance industry who prefer the PR (or is it bs?) about insurance not being “systemically important” would be an understatement! But, I can almost forgive them their ignorance as they tend to be too busy doing what they have to do to survive, on a day-to-day basis, in difficult times. However, as someone who cares about the stability of the industry and a committed contrarian it would be wrong of me NOT to continue to advise and inform about something that could have such a significant upon their future financial well-being!

Quite apart from concerns about the behaviour of complex systems (see below), the insurance industry relies upon rating future risk based upon probabilities seen in incomplete data from past events, with an unhealthy smattering of assumptions for good measure…like Groundhog Day! But, even if this were as scientific as the industry would like us to believe, the risk models upon which they rely DO NOT/CANNOT cope with the non-linearity of a non-interacting network let alone that of interdependent networks (below).

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Risk STILL isn’t optional: nor is the truth!


Where are the “risk leaders”?

Instead of FS compounding the problems we should be utilising our expertise and resources to establish a means of “repaying” society, by promoting, supporting and investing in building community resilience.

EVERY project, process, task, operation being undertaken by an organisation is reliant upon varying degrees of INTER-CONNECTED process that (often unseen) underpins function. Each contains some degree of risk.

The more complex the process or product the greater the exposure. Risk does not ‘run parallel’ to function, it is inherent to it and, as such, RM cannot be viewed as an option or add-on! To me this, scarily common and naive perspective serves to reinforce the need for a paradigm shift in Corporate culture.

I have revisited this old article for a couple of reasons. Firstly, (even though I say so myself) I thought it rather good! Secondly, I am seriously concerned that, where there should be “thought leadership”, there are, instead, clear signs that in some quarters a, subjective, consultancy-led approach is preferred to a rigorous, quantitative, analysis of business exposures!

This despite IRM, in a paper issued last year [Risk Appetite & Tolerance], advocating a more quantitative approach. In their accompanying webinar they offered a timeous reminder of Board level responsibilities:

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