Despite the increasing uncertainty with regards to the financial hit to industries, Russell Group have modelled the exposure for companies and countries. In the first of these articles, we take a look at the impact on shipping.
Interview with Airmic News
06 June 2018 | Blog Post
Published in Airmic News
"Connected Risk" is fast becoming a buzzy new concept, but what is it, and what does it mean in practice? We spoke to Suki Basi, MD of the Russell Group, who are leading a workshop on this subject at the annual conference.
What is connected risk?
We define this as the systemic exposure of commercial organisations, their partners, suppliers and clients to cumulative and cascading financial, operational and reputational vulnerabilities. Connected perils such as a cyber-attack or a spark that ignites a war is a potential network disruption, which is susceptible to risk propagation threatening the balance sheet, operations and brand, not only for the insurance community but also their corporate clients. These are further compounded when events themselves connect.
Where did your own connected risk journey begin?
At the height of the asbestos, pollution and health hazard crisis in 1996, Lloyd's of London set up Equitas, a specialist vehicle for handling the overwhelming long-tail liability claims lodged principally by US employers against insurance companies backed by Lloyd's syndicates. Thousands of Lloyd's 'Names' who provided capital to these syndicates were exposed to unlimited liability and went bankrupt. Lloyd's turned to Russell Group to model and calculate the Lloyd's market exposure to these long-tail liability claims. Understand the causes of these liabilities and you can begin to understand connected risk and opportunity in the present.
Can you elaborate on what connected risk, as you describe it, means for corporates in 2018?
Our current inability to effectively quantify unknown risks is a symptom of the traditional disconnected silo thinking emanating from the insurance industry. One traditional single insurance specialty class risk can infect some or all other classes in the network. At the same time some or all specialty classes in the network can infect a single class.
If we begin with an opportunity-led approach that connects the insurable silos, which include NatCat, property, aviation, marine, energy and liability, we can build a more complete understanding of the entire strategic risk across and within each product or business class. We can then further expand this to explore the broader risk framework that affects the corporate world and how that impacts business strategy and the balance sheet.
Sounds good in theory, but how does managing connected risk work in practice?
Data is the foundation that underpins this observable risk universe, which connects peers, trading partners (suppliers and customers), trading partners' own partners, and current and proposed markets. Connected risk modelling can then identify and maximise opportunities on a proactive rather than reactive basis and enable the mitigation of threats to the business far earlier and more effectively than is currently achievable.
Key to such an initiative will be the construction of integrated data sets that describe and analyse the flow of trade between business networks across industrial sectors and an analytics layer that quantifies the exposure flowing within such business networks.
The Russell Group workshop (B9 - Managing Risk and Opportunities in a Connected World) takes place at 4.15pm on the opening day of the annual conference.