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Thinking differently about Emerging
risks
Neil Allan
© < Systemic Consulting>
This presentation has been prepared for the Actuaries Institute 2016 ERM Seminar.
The Institute Council wishes it to be understood that opinions put forward herein are not necessarily those of the
Institute and the Council is not responsible for those opinions.
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Managing Emerging Risks using their
Characteristics
• Applying evolutionary tools and theory to manage and
identify emerging risks
• Applying network theory to identify patterns to manage emerging risks
• How we can use models to understand emerging risk
behaviour and help spot emerging risks.
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Cladistics & evolutionary trees
Cladistics (Phylogenetic systematics) is the study of the
evolutionary relationships between living or non-living things based upon analysis of the characteristics that
define each thing.
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• Emerging risk events are (nearly always) simply new combinations
of known risk characteristics
• We can analyse which risk characteristics exhibit evolutionary
change and hence are more likely to evolve into new risk events
Emerging risks or evolving risks
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Characteristics: (a) paired fins, (b) jaws, (c) large dermal bones, (d) fin rays, (e) lungs, and (f) rasping tongue
Cladistics technique - a simple example
*For a detailed review of the methodology applied in the case study please refer
to Allan, Cantle, Godfrey & Yin (2012) British Actuarial Journal
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Evolution of ‘green’ Vulnerability to geo-magnetic storms and solar flaresMedical advancesDriverless carsMotor technology developmentsEvolution of personal dataRating factorsClimate changesLongevityEmerging claims
Capital modelling
Statutory & regulatory changes
Political instability
Claims
Underwriting experience
Technology
Pandemic & health
Pricing
Emerging Risk
Tree
Using a sample
data set of
emerging risks
survey.
Curtesy of ORIC
International, London.
PRA review of lifetime mortgagesHM Treasury Consultation on public finance
FAMR & FCA reviewsFCA mortgage market reviewUK health & social care provisionChanges to UK public policy Changes to GI distribution modelsUK political situation
Cyber crime
Cyber unknowns
New style competitors
Robot-advice
Food health GM/additives
Global population changes
Melanoma increase due to ozone depletion
Electro-smog health issues
Nanotechnology pollutants
Unknown disease pandemic
Competition, Technology (data)
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Overview of Emerging Risks Process
Curtesy Milliman
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Emerging Risk Network
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Clustered risk network
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Planet and
Human
Health
(latent & new
claims)
Socio-
Economic
Statutory
and
Regulatory
Change
Technology
and
Personal
Data
Modules have similar characteristics
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Domino or Contagion an Emerging Risk
• Has systemic implications
• Key issue – without
modelling there is no way
of knowing, in the early
stages, if this is just low level,
regular issue or a major
problem
• So model and then:
– measure the potential of every node and rank them
– Model potential benefits that can arise from local and global mitigation strategies
For more information see award winning paper at ERM Symposium, Washington, 2015, ‘How resilient is your organisation? From local failures to systemic risk’ N. Allan, C. Ellinas, N. Cantle
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Conclusions• The past is helpful in understanding the future, especially through
the use of characteristics
• It IS possible to spot emerging risks, and to do so formally and rigorously
• The signs and evidence of emerging risks is nearly always there, so make descriptions rich
• Evolutionary and network methods can focus management effort
• The data needed is already available, so combining evolutionary & network tools and methods is highly productive
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Questions?
Neil Allan
Director Systemic Consult
+44 (0) 1225 660899
+61 (0) 477964777