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Emerging Risks

Synpulse’s Maturity Level: Early warning system to manage emerging risks

Emerging risks is not a new topic. This article introduces a model to evaluate the maturity level of emerging risks and recommend risk management strategies for for (re)insures.

A simple Google search would result in an enormous number of articles discussing the emerging risks topic on various levels. However, very few focus on the methodology of a risk management strategy for emerging risks.
From a risk management perspective, a profound emerging risk strategy should be based on the following questions:

  • How developed is the risk?
  • How much data is available?
  • Have there been any claims?

To evaluate these questions more accurately Synpulse has created a four-level maturity model to map emerging risks

Level 1. Risk Identified: Data to be collected

  • Typical risk: Emerging Artificial Intelligence (AI)

The current risk of not being able to understand the decision-making process done by AI/ML and potential backlash from that on society is affecting business strategies and models as they become more automated.

Due to the fact that we have not seen any claims appearing from this risk yet, we categorize it as Level 1.

At this stage, the risk has been identified but relevant data for quantification is limited. The best reaction at this stage is to collect data bothinternally and externally. The first step for data collection is to identify data sources. Major data sources include:

  • Soft – media, grey literature
  • Regulatory – trade data, compulsory monitoring/surveillance
  • Scientific literature and expert judgement
  • Networks and partnership: with key stakeholders of the risk
  • Exchange of information with industry players
  • Data analysis

Level 2. Damage Appeared: Impact to be evaluated

  • Typical risk: Autonomous vehicle

As of March 27, 2018, California DMV has received 60 Autonomous Vehicle Collision Reports. Recently, an Uber self-driving car killed a woman from Arizona. The first fatal crash involving a pedestrian.This incident provoked more discussion on the maturity of the technology. Yet, the risk of autonomous vehicles is still at Maturity Level 2: Damage Appeared.

At this stage, loss of (re)insurers has appeared and some data are made available. But the overall impact of this risk for portfolio is not clear. To evaluate the damage impact, we recommend the adoption of below techniques:

  • Scenario development
  • Stress Test

Level 3. Impact evaluated: Protection method to be developed

  • Typical risk: Antibiotics Resistance

Studies have estimated that, in the United States, antibiotic resistance adds USD 20 billion in excess direct health care costs, with additional costs to society for lost productivity as high as USD 35 bilion a year. [1]

With financial incentives, health insurance providers in the US are encouraged to sponsor hospitals and health systems to invest in antibiotics management equipment and technology, implement consistent reporting of infections and associated data, and require more robust antimicrobial stewardship programs.
Based on above discussion, we would like to rank this risk at Maturity Level 3: Damage evaluated: protection method to be developed.

[1] Antibiotic Resistance Threats in the United States, 2013 by Centers for Disease Control and Prevention

Level 4. Protection developed: Product to be developed/enhanced

  • Typical risk: Aging society

By 2050, an estimated quarter of the world’s population will be over 65 years old.

The insurance portion is primarily annuities, whole life mortality insurance and medical products in some markets. [2] Despite several attempts to create a substantial market demand for traditional long-term care insurance, that solution remains largely a niche product.

Based on the discussion above, this risk will be categorized at Maturity Level 4: Protection method developed: Product to be enhanced.

[2] Who pays for aging? By Swiss Re, http://www.swissre.com/ rethinking/longer_lives/#inline

Would you like to read more about our maturity model and our approach for emerging risk management? Please reach us directly through the contact details below.

Synpulse is co-authorizing article on emerging risk with SwissRe. Stay tuned for more!

Meiyang Guo
Consultant
may.guo@synpulse.com
 Meiyang Guo
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