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.

Read more of this post

Systemic Risk:: deep collapse in “nested adaptive cycles”


no-trust-300x225I don’t write this blog because I am intent upon coming across as some smartarse, know-it-all, merchant of doom! Rather, accepting the limitations of my own knowledge, I want, as far as is possible, to inform readers (thanks for your interest!) of issues that affect each and every one of us.

I reckon, if I prompt individuals to ask questions of themselves, me,  employer, politicians, trusted advisors or media sources then that is good. If I can answer questions even better. If I cannot, then that may be all the motivation I need to consider a worthwhile topic further or from another perspective. After all, with the communication tools we have at our disposal in the Digital Age, this IS a “Knowledge Economy”.

Part of the problem, that bothers me, is that many of the established sources of information are not as reliable as they would have you believe. Some only see information through the lens of engrained belief systems – a form of blindness. Others rely upon a cocktail of manipulation and, deliberate, misinformation. If this sounds far-fetched please stop to consider: what we have learnt about the culture in Institutions, in whom we were “happy” to trust; how we came to learn of the nature and scale of “abuse”: how long before “abuses” were admitted; why, despite, such as WikiLeaks, Occupy, etc. so little has changed; when we can expect to see perpetrators held to account for their actions?

Read more of this post

Innovation: the difference between organisational agility or fragility


Seth Godin is “on the money” yet again but I would contend that, if it is the most adaptable that survive and thrive, then each are key elements (or “phases”) that, harnessed and applied, drive innovation in an agile, dynamic, system…

Organization vs. movement vs. philosophy

An organisation uses structure and resources and power to make things happen. Organisations hire people, issue policies, buy things, erect buildings, earn market share and get things done.

Your company is probably an organisation.

A movement has an emotional heart. A movement might use an organisation, but it can replace systems and people if they disappear. Movements are more likely to cause widespread change, and they require leaders, not managers.

The internet, it turns out, is a movement, and every time someone tries to own it, they fail.

A philosophy can survive things that might wipe out a movement and that would decimate an organisation. A philosophy can skip a generation or two. It is often interpreted, and is more likely to break into autonomous groups, to morph and split and then reunite.

Industrialism was a philosophy.

The trouble kicks in when you think you have one and you actually have the other.

Panarchic cycle (large)Feel free to fit: philosophy; movement; organisation, as you see fit, to this infographic of the “Panarchic Cycle”

The bewildering, entrancing, unpredictable nature of Nature and people, the richness, diversity and changeability of life come from that evolutionary dance generated by cycles of growth, collapse, reorganization, renewal and re-establishment. We call that the adaptive cycle. 

Holling, 2009

Welcome to Art class: The “art” may be survival

Warren Buffett urges more insurance underwriting discipline…


Is this just another opportunity for UK insurers to determine that such warnings, obviously, DON’T apply to them!?

“At bottom, a sound insurance operation requires four disciplines:

(1) An understanding of all exposures that might cause a policy to incur losses

(2) A conservative evaluation of the likelihood of any exposure actually causing a loss and the probable cost if it does

(3) The setting of a premium that will deliver a profit, on average, after both prospective loss costs and operating expenses are covered

(4) The willingness to walk away if the appropriate premium can’t be obtained,”

the letter states. “Many insurers pass the first three tests and flunk the fourth. The urgings of Wall Street, pressures from the agency force and brokers, or simply a refusal by a testosterone-driven CEO to accept shrinking volumes has led too many insurers to write business at inadequate prices. ‘The other guy is doing it so we must as well’ spells trouble in any business, but none more so than insurance.”

via Warren Buffett Urges More Insurance Underwriting Discipline, Fewer “Testosterone-Driven” Decisions.

This is a much bigger issue than even WB appreciates

When “the Oracle” speaks he tends to worth listening to and this pearl is no different. However, the dire warnings of, such as PwC and Citi have previously been ignored and there is little evidence to suggest that this is about to change! Have insurers (and the wider industry) failed to learn anything from their (rightly) vilified “cousins” in banking?

Do they not realise that, whilst Banking institutions were deemed TBTF (see below), insurers most certainly are not.

I wrote, recently, about the differing views of insurance and systemic risk on the two sides of the Atlantic. For my money the UK view is dangerously naive and has little basis in evidence. The precarious state of global FS and the, tightly-coupled, national economies that rely upon them, are such that the failure of an insurer or, for example, a major consolidator in the broking sector, could trigger a new financial collapse.

As we know from recent economic history, systemic risk in FS moves at lightning pace. BUT, when (not if) the impact of a new and avoidable crisis cascades into social and cultural domains  – adding to the existing financial burden WE are having to live – this could prove to be the “death knell” for FS greed-mongers and inept Political Klepocrats.

Read more of this post