Insurance Industry:: Innovation, transformation or failure

If you have visited my blog before you will already know that I have spent some considerable time researching and commenting upon a wide of topics that, although many within insurance fail to see the connection, are related directly related to the insurance industry.

In truth, my work was initially prompted by concerns (a deep dissatisfaction may be more appropriate!) about how the insurance (particularly broking) operated: structure; culture; regulation; remuneration levels; use of IT; cover; pricing of RISK. It was only as I delved deeper into the subject matter, a form of ‘root cause analysis’ [RCA] – causality being particularly pertinent to insurance! – that I came to fully appreciate HOW DANGEROUSLY LIMITED the understanding and application of a probability-based assessment of risk truly was. Especially when the business environment has, fundamentally and irrevocably, changed.

If a future event will take place, it will do so irrespective of the probability that we may have attached to it. If an extremely  unlikely event will happen, it’s probability of occurrence is already 100%

Having been introduced to Complexity (by Dr Jacek Marczyk, Founder of Ontonix srl) and it’s relationship to risk and uncertainty my RCA led me to investigate from a (more rigorous) scientific and mathematical perspective. Eventually into the realm of the behaviour of Complex Systems and, inevitably, to Systems Thinking. Gradually, the understanding, that comes from viewing life and work through the Systems lens, revealed that much of what is wrong with Financial Services stems from unnatural interventions.

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Even when the DNA is similar “we can’t fix today’s problems with yesterday’s tools”:: Part 3


EXCESSIVE COMPLEXITY can come in a wide variety of forms: flawed economic theory; excessive debt (measured in relation to the requisite complexity of the system); poor or misguided Governance [instead of homoeostasis for business]; general/risk management or accounting practices that “constrain” the system in pursuit of skewed rewards or excessive returns*; misaligned operational structure & IT;  or processes &/or products; product, culture and strategy ambiguity (that hamper information-flow);  lack of “requisite variety”; assumptions or decisions based upon correlations in incomplete or misleading data…all very dangerous for individual financial systems and those connected to it, irrespective of scale or domain.

*the assumption that, because we know (knew) how to manage complicated systems, we know how to do likewise with complex systems is, evidently, wrong and dangerous.

We continue to be limited by our own knowledge, thus, invite disaster. We prefer faux certainty (a projection of the future based upon our past) to the reality of uncertainty and, as a result, when disaster strikes, we are prone to “label” what was unforeseen as unforeseeable…that suggests that we have looked but did not see! When, too often, the truth is that we didn’t look but assumed. Or “overlooked” by failing to utilise the tools available to us. Read more of this post

Even when the DNA is similar “we can’t fix today’s problems with yesterday’s tools”:: Part 2

INFORMATION – INTELLIGENCE – INNOVATION have transformed our INVENTIONS, theories and practices to such an extent that we need to be aware of the limitations of our knowledge: we MUST question what we “know”…not so much a case of familiarity breeding contempt but leading to “ignorance” and increasing risk.

The complexity of some man-made systems has so outstripped our ability to manage them that, increasingly, we need to draw upon our observations of the complex systems found in nature 

“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.”

Practice without sound theory will not scale…but it WILL expose and “amplify”, wrong assumptions, errors & omissions

The irreversible complexity of man-made systems* e.g. communications, IT, transport, economic, financial, business, logistics, business, etc. have outstripped our ability to understand, maintain, manage or repair flaws without the tools and techniques that enable us to examine the relevant system components and relationships at a variety of scales [micro – macro – holistic]: Law of Requisite Variety (refer Part 1). Read more of this post

Agile or fragile?:: organizational complexity is a waste farm

This article is another example of a lesson for Organizations to be prepared for “exaptation”. I have mentioned (more than once!) about the “universality of systems” and that, organizations that are “too busy chopping wood to sharpen the axe” are doing themselves and their stakeholders a great dis-service. Why not consider and embrace, tried and tested, solutions from other sectors and disciplines…instead of sticking to management structures, that were designed to oversee people and linear processes…in the (now past) Industrial era?

15-Global ChallWe are now inter-connected components in a “Knowledge Economy”, existing in the Digital Age. The most successful Complex systems are those with an interdependent Operational Structure to “support” the effective exchange of information.

Even when unseen, we now appreciate the importance of effective information-flow within and among networks of systems. Although I vaguely recall reading that this isn’t a direct quote from Charles Darwin (I am happy to leave others to investigate that) THE message is clear. He wasn’t talking about organizations per se but he was talking about biological systems:

It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change. In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.

Yeah we ALL know how tough trading is in the current climate! So, why exacerbate the problem by failing to observe information from the environment?

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Differentiating risk and uncertainty [infographic]: : YOUR feedback required

risk horizonI have sat on this for…months because I:

  • cannot make my mind up how happy I am with it,so
  • I have accepted it is best to view it as a collaborative work in progress
  • wasn’t entirely sure what I was going to do with it or how best to share it
  • am frustrated that people in the “risk business” are unwilling to engage in informed discussion about:
    • business – networks – markets as Complex Systems
    • identified RM failings in
      • conventional Risk/Project Management – Corporate/banking/insurance
      • subjective Risk assessment
      • Risk rating
  • am fed up with people, who should know better:
    • being unable to differentiate between risk and uncertainty, or
    • confusing the two
    • failing to recognise the serious implications of treating uncertainty with risk management tools/techniques and
    • making, dangerously naive, assumptions e.g. Read more of this post