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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Business Fractals: THE MEANING OF COMPLEXITY


When it comes to being trained or gaining a hands-on understanding of business management I doubt that much thought ever went into considering the 2nd Law of Thermodynamics!? But, then again, much of what is still taught (and therefore understood) about business management requires such a radical change of mindset (&/or revisiting cybernetics/VSM) that only something akin to transformation will suffice. Because business in the Digital Age has changed…permanently!

The nature and scale of change, over the last half century, has been dramatic. The inter-connectedness and pace of change has accelerated during the last decade. Yet, we continue to take so much for granted that we have kept faith with tools and techniques that lack the requisite variety to deal with the business systems they are intended for. Furthermore, Business Management, like Risk Management, Actuarial science and Economics, were never sufficiently rigorous to be considered as remotely scientific. A point that has been illustrated time and again but, unsurprisingly, practitioners find the facts somewhat difficult to accept. Hence the business as usual mentality with the ongoing problems it creates! Read more of this post

Simplifying organisational complexity:: inspired infographics – The Art of Complex Problem Solving


Interactive Infographic: The Art of Complex Problem SolvingClick for interactive version

I’ve never met Marshall Clemens but can state emphatically that I love his mind!

As anyone who has read my blog before will know, simplifying and conveying the message about an abstract concept like complexity is not easy.

Add to that the fact that there is no single/common definition and, apparently, little scope for agreement – certainly not amongst Academics!So not much chance of a common language…UNLESS Marshall has provided an inspired starting point.

“Translating” the scientific and applying it in terms that relate to a business environment is difficult to communicate and, until I found this, difficult for many business-people to visualise. Although excessive complexity can seriously damage both wealth and health!

There are considerable risks associated with conventional, hierarchical, organisations, as well as the management style and associated culture. NOT all of these risks e.g. excessive complexity, are visible…but that does not mean that they are not there! Just that we require the appropriate tools to identify them.

The FACT is, that unmanaged, *self-generated [endogenous], risk is a source of systemic risk and is communicated, using business connections (e.g. financial networks, supply chain) as the conduit, to other entities (large and small; individual and corporate) across industries, communities, borders and domains:

by our inaction WE are adding to the very financial uncertainty and market volatility that we so desperately need to address!

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An INCOMPLETE guide to risk-based insurance decisions!:: new report from PwC


The momentum that MAY bring us to a, much needed, "tipping point" in Risk Management is certainly gathering!

imageHOWEVER, this latest report, Strategic risk management: Facilitating risk-based insurance decisions from PwC "disappoints" despite identifying some key elements! It illustrates where we, currently, fall well short of what is required and offers a, dangerously incomplete perspective.

I could not agree much more with the following blurb from PwC. BUT, having skimmed through the report, I do find it incredible that, in 2012 and knowing what we do about the inter-connectedness of business in the Digital Age, a report such as this (that runs to 17 pages) contains no mention of COMPLEXITY!

Many enterprise risk functions do reasonably well identifying, modelling and mitigating "knowable" risks, but face a bigger challenge identifying, quantifying and mitigating more ambiguous ones, such as the ones that characterized the recent financial crisis. Accordingly, we believe that insurers require a strategic risk management (SRM) solution that identifies, assesses and economically manages potentially enterprise-threatening losses over time; in other words, SRM is a way to mitigate evolving risks before they spiral out of control.

Creating a strategic risk management solution for insurance businesses: PwC.

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“Insolvent insurers not a systemic risk”– Insurance Insight


Link to report

Well that is reassuring…isn’t it!?

I have (quickly) read through the report and, whilst it is hard to argue that, based upon past experience, Insurers and Re-insurers ARE of “systemic importance”*, several key points appear to be overlooked…or, perhaps ASSUMED. Probably not the best starting point for such a, potentially significant, report!

Here are a few of the issues that struck me as worthy of comment, or questions:

  • impact of sovereign/banking default or collapse [cascading] on Capital liquidity
  • the inter-connections amongst individual (micro) and institutional investors (macro)
  • lack of transparency in relation to “counter party” relationships          [ins – ins – rein – fin. mkt. – ins – rein, etc.]
  • insurers obtain adequate information to understand, accurately assess and rate risks*, that are,
  • mostly idiosyncratic and uncorrelated”, and
  • “insured loss events are not normally correlated with financial crises or economic cycles” [risk – “known”]
  • reserve and reserving adequacy
  • customer/insurer, etc. implement effective risk management – dampens rather than amplifies risk
  • there is no need to differentiate or adapt risk strategy for uncertainty [unseen – “unknown”]
  • “complexity” is NOT a source of “unseen” risk that, unmanaged, adds to uncertainty
  • major sources of risk are exogenous
  • failure or collapse are gradual, manageable and “top down”
  • Reputational or Operational risks are not  major threats…

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