Insurance:: “Future risk” and technology [CII report]

30 yeas ago (and for much of the intervening period!) I never thought I would utter the words, “what a great report from CII” but there you are, I’ve done it now. I’m the “sad” insurance man I never wanted to be.

Well, not quite, because I am very much an outsider as far as the insurance industry stands right now. The main reason being that too many people on the inside don’t want to hear, like or understand what I have to say about the massive problems that the industry is adding to day, after day, after…

Complexity and Consequence: what financial and risk engineers MUST learn from mech. eng. (or anywhere)

Image by XuRxO via Flickr

Recently, I have found myself writing about the importance of ADAPTABILITY* & RESILIENCE in complex (business) systems. This is, partly, due to the fact that, the acceptance of the “shortcomings” of current risk models and tools, are becoming more widely “recognised” (in some instances “admitted”)!

*Boston Consulting Group recently cited “Adaptability: the new competitive advantage”.   

The number of Consultancies that – after many years of profiting from preaching the merits of (now-discredited) models and strategies – have now discovered, and wish to share, their “new found” expertise in “complexity theory” and “systems thinking”.

Unfortunately, their participation in the education process wont undo the damage done!

WE should be grateful that the damage their contribution to the prevailing culture has done is substantially reduced and that a higher level of business understanding is, increasingly, on the agenda.

However, I suspect that we have not seen the last of Consultancies promoting and implementing “solutions” that make (business)  systems and economies more fragile…because there are fees to be earned!

Revisiting The Limits to Complexity: micro managing your way to macro collapse…

…without losing office or wealth!

PLEASE do yourself a favour and read the full article and ask yourself IF there is any basis to trust in Political and Financial institutions when THEIR agenda(s) have ensured that the handling of the financial crisis has fuelled “civil protest” and, may yet, lead to widespread unrest. By recapitalising the architects of financial collapse Governments and Regulators have allowed them to, further, profit from the economic turmoil they created and for which the weakest in society will continue to pay a heavy price for many years to come.

The graphics are my own. They have embedded links, I hope they help!

"…these same banks were also allowed to securitize many of the underlying loans, sell them off to various institutional investors and market derivative instruments to those clients who wished to gain exposure to the global sub-prime mortgage bonanza. When the greatest financial ponzi scheme known to man eventually collapsed in 2007-08 and it was clear that the global economy faced an imminent depression, governments worldwide decided to "respond".What this response amounted to was an attempt to maintain economic and financial complexity by adding on layer after layer of ever-more complex structures, and suspending/manipulating any measure of reality that was in the least bit accurate.

Risk: ignorance isn’t an excuse for clients and is inexcusable for insurers

I have lifted this text from a recent Linkedin discussion – once I establish the source I will share that too – and wonder what will it take for the insurance industry to tackle known limitations?

“Recent experience in the Americas has shown that the hidden indirect costs of ignored or unforeseen risks are between five and ten times higher than claims payments which implies an inability to see, anticipate and measure the scope of risk interdependence in complex business environments by clients, brokers and underwriters alike.”

This is precisely the point that I have been making and WHY I WILL persist with my attempts to make COMPLEXITY ANALYSIS & MANAGEMENT a cornerstone of future insurance rating.

I am far from alone in highlighting (1) the problem (2) the potential impact. In 2010 and, again, in 2011 Mactavish Consulting produced really worrying reports. The commentaries from PwC and Citi should have very loud alarm bells ringing…I can’t hear them! Rather the findings are labelled as “inconvenient truth” and swept under a well-worn carpet in the hope that the spark, that will betray the increased fire risk, doesn’t happen on the current watch!!!

Are the Strategic risk functions and shareholders being kept in the dark whilst “wider economic climate” is readied as the excuse for the inevitable losses?

“British firms contain new risks that have not been properly understood or reflected. As a result of this combining with existing pressures on insurers, the insurance sector and the companies it serves could be facing a perfect storm that would form another phase of the financial crisis.Our research suggests that company managements, insurers and investors all need to wake up to face this reality.”

Seth Godin covers “known knowns thru unkown unknowns”

Risk management isn’t just something for businesses to deal with. Here is some, typically pragmatic, advice from a man for whom I have previously declared my (purely platonic) “love”:

Disaster tolerance