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© Lloyd’s 1
< Picture to go here >
© Lloyd’s 1
Identification & Management of Emerging Risks Nick Beecroft Manager, Emerging Risks & Research
© Lloyd’s 2
What is an ‘Emerging Risk’?
► Lloyd’s defines an emerging risk as: an issue that is
perceived to be potentially significant but which may not be
fully understood or allowed for in insurance terms and
conditions, pricing, reserving or capital setting.
► In practical terms, the defining feature of an emerging risk is
high uncertainty concerning the essential features of the risk
(likelihood and impact)
► The aim of emerging risk management at Lloyd’s is to reduce
uncertainty through research and scenario development.
Research
(thought
leadership)
Scenario
development
Exposure
management
Innovation
© Lloyd’s 4
Plausible but extreme
► Implies an extrapolation of
observed occurrences: the
‘known unknowns’
► Events remain the most
powerful force in framing
analysis
► Insurers are required to be
resilient to losses incurred
against 1:200 events
– For emerging risks, we
must be comfortable in
accepting expert
judgment as the basis of
this assessment
Lloyd’s Realistic Disaster Scenario
2-tonne bomb blast, Rockefeller Centre, New York City
© Lloyd’s 5
Enterprises driving the global economy
Wal-Mart
Shell BP
ExxonMobil
PetroChina
Volkswagen
Toyota
Berkshire Hathaway Pfizer
Johnson & Johnson
Roche
GlaxoSmithKline
AT&T
Apple
Amazon
Chevron
Gazprom
Sinopec General
Motors
Allianz
Oracle
AXA
Tesco
Nestlé
Auto
Aerospace Energy
Consumer
Biotech
Technology Financial
Globalisation & systemic risk
© Lloyd’s 6
Conclusion
► The focus of emerging risks management is to reduce uncertainty – not to predict the future
► The foundation of this analysis is the concept of ‘plausible but extreme’ events
– Key problem lies in challenging assumptions based on experience & behavioural bias
► In the absence of data and historical evidence, expert judgment is paramount
► A common theme in emerging risks is complexity driven by the pace of globalisation
► Insurers’ requirement to quantify risk forces us to ask some of the most difficult questions about likelihood and impact
Underwriting slip, RMS Titanic, Lost 14 April 1912 Tohoku Earthquake, Japan, 11 March 2011