Emerging risks at Swiss Re
Emerging risks at Swiss Re
Page 2
Overview
Introduction to emerging risks
Nature of emerging risks
– Common denominator
Emerging risks
– Nanotechnology
– TSE/vCJD
– Avian influenza
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 3
Introduction to emerging risks
Emerging risks are developing or already known risksthat are difficult to quantify and may lead to claims with a high loss potential
Novelty/change
Uncertainty
Insurance relevance– Cumulative loss potential– Long-tail– Multi-line– Frequency and severity difficult or impossible to assess
“Headline articles” – Increasing public awareness
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Key: avoid surprises in a rapidly changing environment
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 5
Emerging risks and early indicators
Time
Indicators/signs
strong
weak
Room for action
Anticipation of opportunities and identification
of risks
Action and reaction
The earlier risks and/or opportunities are identified, the greater the operating
field for action
The earlier risks and/or opportunities are identified, the greater the operating
field for action
Influentiality
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 6
Changes in the risk landscape
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Thresholds for catastrophes –2004
(source: sigma No 1/2005)
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Reasons for the changing risk landscape
Changes in the risk landscape due to– growing interdependency of risks– increased complexity and inter-linkages
Changes in the business environment due to– changing liability regimes– increasing expectations of stakeholders– heightened consumer safety awareness and
improved analytical methods to detect harmful substances or defects
– increased cost pressure on suppliers and producers, leading to shorter development periods (time to market) and commensurate premature products
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Asbestos: early warnings and measures
1898
1906
1911
1911 and 1917
1918
1930
1931
1935-49
UK Factory Inspector Lucy Deane warns of harmful and “evil” effects of asbestos dust.
French factory report of 50 deaths in female asbestos textile workers and recommendation of controls.
“Reasonable grounds” for suspicion that asbestos dust is harmful based on experiments with rats,.
UK Factory Department finds insufficient evidence to justify further actions.
US insurers refuse cover to asbestos workers due to assumptions about injurious conditions in the industry.
UK Merewether Report cites 66% of long-term workers in Rochdale factory with asbestosis.
UK Asbestos Regulations specify dust control in manu-facturing only and compensation for asbestosis, but this is poorly implemented.
Lung cancer cases reported in asbestos manufacturing workers.
Source: David Gee & Morris Greenberg“Asbestos: from ‘Magic’ to Malevolent Mineral”.Late Lessons from Early Warnings: The Precautionary Principle 1896–2000. EEA Environmental Issue Report, no. 22, 2001, p.61.
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Asbestos: early warnings and measures
1955
1959-60
1962/64
1969
1982-89
1998-99
2000-01
Doll establishes high lung cancer risk in Rochdale asbestos workers.
Mesothelioma cancer in workers and public identified in South Africa.
Mesothelioma cancer identified in asbestos workers, in neighbourhood “bystanders” and in relatives in the UK and the US, among others.
UK Asbestos Regulations improve controls, but ignore users and cancers.
UK media, trade union and other pressure calls for tightening of asbestos controls on users and producers and recommends substitutes.
EU and France ban all forms of asbestos.
WTO upholds EU/French bans against Canadian appeal.Source: David Gee and Morris Greenberg, “Asbestos: from ‘Magic’ to Malevolent Mineral”. Late Lessons from Early Warnings: The Precautionary Principle 1896–2000. EEA Environmental Issue Report, no. 22, 2001, p.61.
Source: David Gee & Morris Greenberg“Asbestos: from ‘Magic’ to Malevolent Mineral”.Late Lessons from Early Warnings: The Precautionary Principle 1896–2000. EEA Environmental Issue Report, no. 22, 2001, p.61.
Claims history: 50bn USD
Estimated future losses: 275bn USD
Source: Milliman's 2001 asbestos report
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Emerging risk value chain
Group framework for consistent and co-ordinated identification, assessment, prioritization, evaluation, communication and translation of findings on emerging risks and novel,
unprecedented scenarios and accumulationsGoal: avoid surprises in a rapidly changing environment
Risk perception: use of internal and external sources
Systematic identification
Triage: use of defined set of criteria
Identification Implementation
Business implementation
Downside risk
protection
Product development
Risk dialogue / risk communication
Assessment
Gathering relevant risk information
Qualitative risk analysis
Quantitative risk analysis, if applicable
Risk benchmark
Evaluation
Prioritising risks
Outlining appropriate responses/measures
Decision on action plan for a specific risk
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The SONAR process
Input
Perception/Observations/Comments by internal and external sources
Swiss Re Group,External networks
SONAR team
Issue managementOpportunity modellingProduct development
Risk communication / dialogue
Markets
Swiss Re experts
Triage
Analysis
SONARWatch list
Risk assessmentRisk managementProduct managementeg EC EMRI
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Systematic Observations of Notions Associated with Risk
Actions
iterative process
Page 13
Prepare for the unexpected: ensureadaptability and long-term thinking
20162006
By 2016:Some scenarios may no longer be relevantProbabilities and severities may changeEmergence of new risks and scenarios
Consequently:Emerging risk landscape has to be monitored continuouslyRisk management strategies have to be reviewed
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 14
Emerging risk landscape
Ageinginfra-structure
Tele-medicine
Foodcontaminants
Indoorpollution
weatherSpace
CO2 trading
Spread ofdiseases
Invasionof
privacy
Privatisation
Offshore & Internet Calderaeruption
Intercontinentaldata trans-mission
market
Electrosmog
Resistance toantibiotics
Cyber risk
Media risk
RSI
Endocrine dis-ruptors
Dirty bombs
Implants
Loss of reputation
Organisedcrime
Contingent
Pervasivecomputing
Customiseddrugs
BusinessInterruption
Cloning Deterioratingsafety standards
Drinkingwater quality
Mega Tsunami
PowerSystembreakdownBotox
Nano-technology
Stress at work
Alcohol
Tocic mold
Boguspart
Page 15
Nature of emerging risks -What do they have in common?
Nanotechnology
Silicosis
REACHPandemics Obesity
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 16
SARS
Pandemics
SARS was not unique!
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Not a question of if, but when and how severe!
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Nanotechnology
By tailoring the structure of materials at the nanoscale, it is possible to engineer novel materials exhibiting entirely new properties
Highly mobile particles and materials in the human body and the environment
All industry segments affected
Worldwide revenues expected to exceed USD 1 trillion by 2015
Uncertainty
Novel properties
• Coated surfaces• Specific properties• Large volumes
New materials – we cannot learn from the past
• No long-term experience• Few exposure assessments• Few toxicology assessments• No classification
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 18
Silicosis
Silica is the second most common mineral on earthNumerous industrial uses Disabling, nonreversible and sometimes fatal lung disease
Disease cannot be cured but is highly preventableStudies indicate evidence of carcinogenic properties of inhaled crystalline silica
First claims in Asia
ODs in PL
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 19
REACH
REACHrequires a complete Risk Assessmentfor all chemicals marketed orimportedin the EU
REACHcovers especially old substanceswhich have already been marketed for decades
REACH will enable the EU to withdrawsubstances from the market orrestrict their use, if negative side effects to humans or the environment are identified
REACH will make this information accessible to the public
Registration, Evaluation and Assessment of Chemicals
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Obesity
Center for Disease Control and Prevention (CDC) has declared obesity an epidemic
1 out of 3 Americans is obese
400 000 obesity-related deaths annually in the US
Increases risk of heart disease, type 2 diabetes and colon, breast and endometrial cancers
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Common denominator of emerging risks
High uncertainty
Little information available
Frequency and severity difficult to assess
Difficult to quantify
Risk transfer difficult
Difficulties for risk communication
Danger of turning into phantom risks
Regulatory involvementoften necessary
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Risk perception differs among stakeholders
Pricing difficult
NanotechnologyThe insurance perspective
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 23
Introduction
nanos: Greek term for dwarf
Technology to visualize, characterize, produce and manipulate matter of the size of 1 – 100 nm.
Small size
– High surface to volume ratio
– Unique properties (material strength and weight reduction, conductivity, new optical properties)
– New entry ways (high mobility in human body and environment)
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
1000 000 nm
<100 nm.
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What makes nanoparticles different from other particles?
0.001
0.01
0.1
1
10
100
0 200 400 600 800 1000 1200
Diameter (nm)
Surf
ace/
Volu
me
perc
enta
ge
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Courtesy of Prof. Paul Borm
Page 25
Engineered nanoparticles
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Engineered particles
Coated surfaces
Specific properties
New materials – we cannot learn from the past
No long-term experience
Few exposure assessments
Few toxicology assessments
No classification
Uncertainty
Large volumes
Specificity
Uncertainty
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NanoparticlesUbiquitous in industrial production
Materials Pharmaceuticals Sustainability
Chemicals ToolsElectronics
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Estimated worldwide revenues exceed USD 1 trillion by 2015
Nanotechnology revenues worldwide by 2015 (USD bn)
Materials 340
Electronics 300
Pharmaceuticals 180
Chemicals 100
Aerospace 70
Tools 20
Healthcare 30
Sustainability 45Source: National Science Foundation
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Behaviour of nanoparticles in the human body
Inhalation of nanoparticles
Absorption throughthe skin
Absorption via the alimentary canal
Effects of nanoparticles in the body (eg blood-brain barrier)
Acute or chronic toxicity? Accumulation, eg in the brain?
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0
1
2
3
4
5
6
Control 14 nmCB
100μM FeCl3
100μM FeCl3/14 nm CB
Neutrophils in BAL
Wilson et al 2002 TAP 184; 172-179
Interaction between particles and metals in vivo
Unexpected reactions of particles
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Courtesy of Dr. Vicky Stone
Page 30
Nanotechnologyenvironmental opportunities & risks
Opportunities
Sensors (humidity etc)
Clean energy
Nano catalysts (pollution reduction)
Filtration (air, water)
Remediation
Fuel cell membranes
Risks
Particles treated to avoid agglomeration
Passage through soil, transport of contaminants (heavy metals)? reaction with other substances?
Ground water: drinking water quality/pesticide problem
Absorption by plants (entry into food chain)?
Removal difficult, filters insufficient
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Regulatory environment
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
FDA: “Substantially equivalent”
EU (Scientific Committee for Cosmetic Products and Non-Food Products intended for Consumers): “TiO2 is safe” (regardless of size)
MSDS: Recommendations according to bulk material
No disclosure obligation –exposure in products difficult to assess
No standardisation/norms available
Basis for:– Comparison of scientific
data – Regulatory attempts– Labelling issues– Legal setup
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Public perception
There is considerable public anxiety about new technologies that could affect the level of liability claims
“Fear of” – Huge defence cost for insurance industry
Public has the power to slow down/stop further developments in emerging technologies (gene technology)
Effective, early risk communication is essential to gain trust of the public and ensure the successful introduction of nanotechnology in the market
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Insurability of risks
AssessabilityProbability and severity of losses must be quantifiable to calculate premium
Causation (in liability insurance)There must be a causal relationship between the action or omission of the insured and the resulting damage/injury/financial loss
Economic feasibilityInsurers and reinsurers must be able to charge a premium which is commensurate with the risk
RandomnessTime of insured event must be unpredictable and occurrence independent of the will of the insured
MutualityExposed parties must join together to build a risk community in which the risk is shared and diversified (ideally a large number; avoid anti-selection)
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 34
Focus on assessibility
Assessibility requires the quantification of risk
– frequency
– severity
Quantification can be problematic for
– revolutionary risks
– risks that manifest themselves with delay (long-tail)
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 35
Evolutionary vs revolutionary risks
Evolutionaryrisk
Revolutionaryrisk
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Focus on causation
Insurance requires a causal relationship between the action or omission of the insured and the resulting damage/injury/financial loss.
Anxiety about new technologies can affect the level of liability claims resulting in defence cost for insurance industry.
Subjective risk perceptions can jeopardize the principle of causation.
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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“Real risks” vs “phantom risks”
“Real risks”
Scientifically proven cause/effect relationship
“Phantom risks”
Risk perceived to be a threatEPA RA Meeting
Dr. Annabelle R. HettSan Francisco, 2 May 2006
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Swiss Re’s action on emerging riskseg nanotechnology
Enhance risk dialogue among business, regulatory agencies, academia and the insurance sector
– Brochure/several briefings
– Top Topic since 2004
– Series of internal and external events/international conferences
– EC EMRI to develop UW guidelines
Member of international organizations and expert groups (IRGC, ICON, EC etc) to support
– Risk assessment/risk management
– Regulatory environment
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
TSE/vCJD
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 40
BSE - an underestimated risk
Cattle Human
20021986 1990 1994 1998 2000
1. BSE casein UK
Ireland
PortugalSwitzerland
France
DenmarkSpainGermany
NetherlandsBelgiumLuxembourg
Liechtenstein
GBRpublished
ItalyCzech R.JapanGreeceSlovakiaSloveniaAustriaFinland
Israel
2004
Canada
US (Import case)
USA
Cats Humans
1990 1996
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Bild Mensch
Page 41
„BSE“ in hospitalsAnother underestimation?
All human vCJD cases detected so far were Met/Met on codon 129 of the PRNP gene
European population:30% Met/Met50% Val/Met 20% Val/Val
Surgical instruments– Neurosurgery– Appendix,
TonsillectomyTransplantation
– Cornea– Dura mater
(meningeal)Hormones
– hGH– Gonadotropine
Prions cannot be removed with today’s sterilization processes
Multistage procedure needed (disposable & reusable instruments)Conversion of autoclaves to 134°C (more time, personnel, cost, new validation)
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Bild Mensch
Page 42
Who, when and how many?
Number of carriers without symptoms unknown
Model-Data only as good as the data processed:
– Infectious dose?
– Incubation period?
– Transmission via blood?
– Genetic pattern?
Also “Non-BSE-Countries” affectedEPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Implementation
Risk mitigation measures differ from hospital to hospital and from country to country
Hospitals
– Perception of risk differs
– Cost pressure
– Implementation is time consuming
Legal base only in SwitzerlandOther countries : only recommendations
– Inplementation different/questionnableEPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Pandemics
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 45
SARS was not a new…
SARS
... but a wake-up call
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 46
There is no doubt that the next “SARS XY” is coming ...
Time to impact/origin
Frequency and severity unknown:
– virulence of the new influenza virus
– speed at which it will spread, duration of pandemic
Who will be affected most? (age group)
Effectiveness of antivirals (does antiviral medication give a false sense of security)?
Panic reaction of public and financial markets (impact on financial markets)?
… but many factors remain uncertain:
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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What will be the next small mutation?
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 48
Pandemics – one of many unknowns in the risk landscape
Global impact, but exact extent unknown
Difficult to quantify and model
No way of predicting the pattern of spread
No reliable comparison with past events
Very broad range of scenarios
Indirect losses difficult to assess
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 49
Many things are difficult to predict…
Life expectancy in the US
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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What can we learn from past pandemics?
Pandemics in the United States, 1892-1957
In 1918, the age-specific mortality was unusual, withthe highest number of deaths among young adults aged 25–40
– Immunity of elderly people?
– ”Cytokine storm”?
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Effects of a pandemic
EconomyDecline in real GDP from lower consumer spending
Decline in real GDP from lost days at work
Equity markets
Credit spreads
Real estate prices
Insurance industry Life and health
Property and casualty
- product liability/recall
- workers’ compensation
- professional indemnity
- directors’ & officers’
Special lines (agro, special risks)
Asset management
Credit risk
Disruption of production
Interruption of the supply chain
Loss of key persons
Travel/quarantine restrictions
Medical treatment/prophylaxis
Water/air condition control
Internal/client communication
Crisis management
Companies
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 52
Decisions on riskRare events, uncertainty
InsuranceDeals mainly with the effects(Extent of the event is relevant)Probability only taken into account where there is no change to the system (in “mass business” – not the case for catastrophes)
AuthoritiesDetermination of the risk (probability diagram)Definition of the level of protection aimed atAcceptance - assessment
Aim: risk financing
Aim: protecting the population
Different goals that should complement each other!
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Typische Szenarien in der Schweiz
sehr gering gering mittel gross katastrophal vernichtend
Adaptiert nach:Risikoprofil der Schweiz, 1999
Wahrscheinlichkeitin den nächsten25 Jahren
Auswirkungauf die Schweiz
Sehr wahrscheinlich30% bis 100%
Wahrscheinlich3% - 30%
Wenig wahrscheinlich0,3% bis 3 %
Unwahrscheinlich0,03% bis 0,3%
Sehr unwahrscheinlich0,003% bis 0,03%
Integrationsghetto ZusammenbruchZahlungsverkehr
Krise im Gesund-heitswesen
Hochwasser
Chemieunfall
Talsperrenbruch
KKW-Störfall
Extremismus/Terrorismus
RegionalesHegemoniestreben
OrganisierteKriminalität
Treibhauseffekt
ZusammenbruchInformationsinfrastruktur
Verlust Kulturland / Artenvielfalt
Verknappungstrateg. Güter
Abhängigkeitvon Suchtmitteln
Wassser-knappheit
Infor-mations-krieg
Erd-beben
Überalterung
Massenvernichtungsmittel
Sturm
Verlust nationale Kohäsion
Verknappung Energie
Trocken-heit/Hitze
Krank-heiten/Epidemien
Wirtschafts-pol. Druck
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Risk management –a demanding discipline
Human perception of risk is subjective and the conclusions reached (estimate of risk) are usually wrong
Risk management and decision-making are analytical processes, often spanning more than one discipline:
What could go wrong?
What would be the consequences?
How could it be prevented?
What would be the secondary effects?
How could they be rectified?EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 55
Risk management process
Risk policyLegislationStrategy
Risk assessmentPerceptionIdentificationAnalysisQuantification
Risk handingAvoidancePreventionReductionFinancing/transfer
Risk controlEvaluationSteeringReporting
Risk managementRisk informationObjectives & goalsRisk communication
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Sharing knowledge –Swiss Re’s Center for Global Dialogue
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Back-up
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Challenges to BCM
Under normal circumstances…
Events limited to a specific geographical area (even with terrorist attacks or natural catastrophes, eg earthquakes)
Certain parts of the business or resources affected (buildings, IT)
Alternatives available, including safe havens/recovery sites
”One-off” event or long return period
and in the case of a pandemic
Systemic disruption, many or all parts and locations affected simultaneously
Practically all aspects of production affected; understaffing/bottlenecks (medicines, IT, rubber)
Limited possibility of a “helping hand“ (eg London/Zurich); nowhere is safe
Spreading around the world in waves
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Implications
Under normal circumstances…
Outside help possible
Alternative locations (disaster recovery sites) make sense
Redundancies increase operational resilience, or ability to cope with disruptions (parallel telephone networks, servers)
and in the case of a pandemic
Ability to help oneself is uppermost
Huge coordination effort (are all locations affected?)
Cutback in output in order to minimise number of exposed workers
Teleworking as a possible solution (for service providers)
Critical functions must be able to survive several “waves“
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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The (re)insurer’s toolbox
Adjustment of insurance cover conditions
Risk selection and pricing
Reinsurance
Securitisation and other means of innovation
Public/private partnerships
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 61
Reinsurance and innovative solutions for transferring risks
Reinsurance
– Reinsurers were formed as a response to new and sizeable risks emerging during the Industrial Revolution.
– Reinsurance allows primary insurers to cover more risks and enables an insurer to reduce its average and probable maximum losses.
Securitisation as an example of an innovative solution
– Insurance-linked securities (ILS) can potentially benefit from the huge scale of financial markets.
– ILS are an efficient means of transferring peak risks (eg natural catastrophes, extreme mortality events).
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Public/private partnerships
Government backstop protection can extend the scope of cover provided by the insurance sector.
Government programmes cover catastrophe risks in various countries.
Yet, some government interventions hamper insurance availability:
– When a government caps premium rates at an artificially low level, insurers exit the market.
– Sympathetic juries handing down large compensatory and punitive awards prompt insurers to stop writing the liability coverage that businesses need.
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Conclusions
Insurers and reinsurers enable risk taking
Risk and opportunities are two sides of the same coin –risk attitude is subject to the individual assessment of both
Key success factors to manage emerging risks include:
– Transparency about risks, stakeholders and trade-offs; systematic gap analysis
– Chief Risk Officer at board/government level with portfolio approach to risks (integrated risk management)
– New, innovative solutions to transfer and mitigate risks
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Risk perception basics
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Differences in risk perception
There is significant variation in risk perception depending on:
– knowledge and education
– cultural background
– experience
– global region(Swiss Re Delphi Study, 1999)
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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How is risk perceived ?
People see what they are able to seeand what they want to see
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
www.aspencountry.com
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Avoid well-known patterns
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Page 68
Risk perception at Swiss Re
Risk perception network established to promptly detect faint signals
Purpose:
– Identification and evaluation of emerging and future risks
– Systematic screening of the risk landscape
– Centralising observations associated with risk from different countries, cultures and enterprises
Systematic Observations of Notions Associated with Risk
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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The SONAR process
Input
Perception/Observations/Comments by internal and external sources
Swiss Re Group,External networks
SONAR team
Issue managementOpportunity modellingProduct development
Risk communication / dialogue
Markets
Swiss Re experts
Triage
Analysis
SONARWatch list
Risk assessmentRisk managementProduct managementeg EC EMRI
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
Systematic Observations of Notions Associated with Risk
Actions
iterative process
Page 70
Emerging risk value chain- Identification
Identification Assessment Evaluation Implementation
Risk perception: use of internal and external sources
Systematic identification
Triage: use of defined set of criteria– identify impact on main value drivers– potential business impact– time to impact– ability to influence the risk EPA RA Meeting
Dr. Annabelle R. HettSan Francisco, 2 May 2006
Page 71
Satellite model for Corporate SONAR
Group emerging risk landscape
Risk Steering
ERMCorporate SONAR
Group watchlist
Output
Asia, Americas, Europe / Africa*
Products&ClientMarketsLife & HealthWatchlistAsia, Americas, Europe / Africa*
Corporate Functions
WatchlistRisk Management, FinanceCommunication & HR, IT*
Financial ServicesAsset Mgmt & CreditWatchlistAsset Mgmt, IRT, Credit Sol, Capital Mgmt & Advisory*
Rüschlikon & WorldWatchlist
Products &Client MarketsProperty & CasualtyWatchlist
*incl external sources
ProductsClaims & Liability MgmtWatchlist
Advisory Panel, conferences, Future Institutes, WEF etc
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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SONAR - watch list available on Swiss Re’s intranet
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Emerging risk value chain- Assessment
Identification Assessment Evaluation Implementation
Gathering relevant risk information
Qualitative risk analysis
– eg including initial risk dialogue, scenario planning measures
Quantitative risk analysis, if applicable
Risk benchmark (assessment of potential insurance impact and comparison with other risks)EPA RA Meeting
Dr. Annabelle R. HettSan Francisco, 2 May 2006
Page 74
Emerging risk value chain- Evaluation
Prioritising risks
Outlining appropriate responses/measures
– eg further risk dialogue, monitoring
– eg identify potential business implementations
Decision on action plan for a specific risk
Identification Assessment Evaluation Implementation
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
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Evaluation & implementation: EC EMRISourcesSONAR: Casualty & Property Center, Risk Engineering Services, Claims & Liability Management, Networks, Market units, Clients
Review Board(CSC)- decides on
recommendations and U/W guidelines
Core Team
- defines relevant topics- defines topic teams- develops recommen-
dations and U/W guide-lines
Topic Teams
- develop recommen-dations and U/W guidelines
- contact business units
DivisionalUnderwriting Officers- provide input to draft
recommendations- implement recommendations
and U/W guidelines
Business Units (Client Markt. & Products)- provide input and feedback to
draft recommendations- implement recommendations
and U/W guidelines
Identification and evaluation process
Review process
Implementation process
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006
EC EMRI: Expert Circle Emerging Risks
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Emerging risk value chain- Implementation
Identification Assessment Evaluation Implementation
Downside risk protection
– Risk mitigation (e.g. underwriting guidelines)
Product development
Risk dialogue / risk communications
– raise awareness with publications, conferences, media information
– Stakeholder dialogue with industries
– Governmental/ regulatory affairs
EPA RA MeetingDr. Annabelle R. HettSan Francisco, 2 May 2006