Future risk - Personal Finance Society...Chapter three reveals the results of two major opinion polls into risk perception. The first of these is an opinion poll conducted for the

Future risk Insuring for a stronger world Centenary Future R

isk Series: Report 6

The Chartered Insurance Institute 42–48 High Road, South Woodford, London E18 2JPtel: +44 (0)20 8989 8464 email: [email protected] website: www.cii.co.uk

© The Chartered Insurance Institute 2012A CENTURY OF PROFESSIONALISM

Ref: CII_demographicsLFH (12/12)C12J_7710

Future risk Insuring for a stronger world

Centenary Future Risk Series: Report 6

2015

Kyoto II

2024

G20 becomes

G30

2022

Microfinance supports 1 billion

households

2017

Euro leaders agree path

to fiscal and political

union

2016

G20 “Summit

for Growth”

2026

Global life expectancy reaches 80

2020

Beginning of the

“Remarkable Decade”

2018

Birth of Ireland’s “Silicon Valley”

BRIC countries

account for 50% of UK

exports

2030

1 Future risk: insuring for a stronger world

contentsContents

2 Foreword

3 Introduction

4 Executive summary

5 Approaches and methods

8 The “remarkable rebound”

17 The importance of risk perception

25 Key recommendations

29 Conclusion

The CII wishes to thank Ben Franklin, former policy and

research manager at the CII for authoring, editing and

compiling the Future Risk reports. We would also like to

thank the expert authors for providing such compelling and

insightful essays which have sat at the heart of the series.


foreword

Foreword2012sawtheCharteredInsuranceInstitutecelebrateitscentenaryyearasacharteredprofessional

body.Whilstitisimportanttocelebratethesuccessesofthepast,weshouldnottakethefuture

forgranted.Rather,wemuststrivetobuildanindustrythatiswellequippedtomeettheneedsof

tomorrow’sworld.Therefore,tomarkourcentenary,wehavepublishedaseriesofreports,eachof

whichexploressomeoftherisksandopportunitiesthatmightfacetheindustryinthedecadestocome,

drawingontheassessmentofcommentatorsacrossvariousfieldsofexpertise.

Whilst‘futuregazing’doesnotalwaysleadtoaccuratepredictions,itisanimportantexerciseforthe

insuranceindustrytoundertakeasunderstandingandassessingemergingrisksisattheheartofwhat

wedo.Indeed,centraltotheroleofinsuranceistheabilitytomakeinformed,professionaljudgments

abouttherelativerisksofvarioushazardsoccurringoveraparticularperiodoftime.Byplanningforthe

long-termandchallengingassumptionsaboutwhatthefuturemightlooklike,theprofessionwillbe

wellplacedtoprovideexpertiseandinsightontherisksthatlieahead.

Butthisseriesisaboutmorethanjustpreparingtheinsuranceindustryforfuturechallenges.Itis

alsoaboutbuildingastrong,cohesivenarrativethatdemonstratesthelong-termpotentialvalueof

theindustrytosocietymorebroadly.Thisfinalreportintheseriesis,therefore,theculminationofa

year’sworthofresearch,debateandintellectualargumentspanningmanydifferentdisciplines,and

consideringalargenumberofdiverseandcomplexrisks.

WehopethatthisreportandtherestoftheFutureRiskseries,hasprovidedmuchfoodforthought

aboutsomeofthekeyinsurancesectorandpublicpolicychallengesofthecomingdecadesandhas

stimulatedsomescenariothinkingofyourown.Andmostimportantly,wehopetohavedemonstrated

manyofthewaysinwhichtheindustrycanhelptobuildandsustainastrongerworld.

Amanda Blanc

PresidentoftheCharteredInsuranceInstitute


IntroductionThisreportisthelastintheFutureRiskseriesmarkingtheCII’scentenaryyearasachartered

professionalbody.Atitsheart,theserieshassoughttoidentifyrisksthatarelikelytoshapetheworld’s

futureanddiscusswhatthepotentialimplicationsoftheserisksmightbeforsociety,theinsurance

sectorandfinancialservicesingeneral.Inevitablytheserieshasalsosoughttoaddresshowthe

insuranceprofessioncandevisestrategiestohelpavoidormitigatesomeoftheserisksandthereby

deliverabetterfuture.

Theserieshasspannedfivespecialreportsoverthecourseof2012,focusingonrisksrelatedto:

socioeconomicchange,globalwarming,technologicalchangeandglobalageing,amongstothers.This

sixth,andfinalreport,bringstheseriestoaclosebyreflectingonthearguments,insightsandevidence

embeddedinthepreviousreportsanddevelopsasynthesistoprovideanevidencebaseforsome

overarchingrecommendationsfortheinsuranceindustry.

Toachievethisaim,thereportissplitintofivesections:

Chapter onerevisitstheapproachesandmethodsthathavebeenusedduringtheseriestogaininsights

intorisksfacingtheindustryandwhatitcandotomitigatethem.Assuch,thediscussioniscentredona

techniqueknownasscenarioplanning.

Chapter twosetsoutonefinalscenariobasedonthefindingsofpreviousFutureRiskreports.Itisa

utopianvisionfromtheperspectiveofarespectedinternationalaffairsmagazineintheyear2030.The

vividnewsarticleentitled“The remarkable decade”describesthekindsofactionsfromkeystakeholders

–includinginsurers–thatwillbenecessarytodeliverabetterfuture.

Chapter threerevealstheresultsoftwomajoropinionpollsintoriskperception.Thefirstoftheseis

anopinionpollconductedfortheCIIbyIpsosMORItoidentifyhowmembersofthepublicperceivethe

relativelikelihoodandimpactofdifferentrisks(i.e.cyberattack,terrorism,overpopulation)occurring

overthecomingdecades.Thesecondmajorsurveyisanopinionpollintotheriskperceptionsofexperts

–namelyCIImembers–regardingasimilarsetofrisks.

Chapter fourbuildsontheinsightsgainedfromtheseprecedingchapterstosetoutsomehighlevel

recommendationsfortheindustry.Welabeloursetofrecommendationsa“manifesto”,becauseinmany

waysitisacalltoarmswhichfocusesontwospecificareas:1)howtheindustrycanfaceuptosome

ofthechallengesposedbyadynamicandevolvingexternalenvironment,and2)howtheindustrycan

continuetodemonstrateitsrelevancetothecommunitiesandsocietiesitserves.

Chapter fiveconcludesthereportbyreflectingonthemainpurposesoftheFutureRiskseries,andthe

waysinwhichfirmsandpractitionersmightwishtousethereportsgoingforwardtopromptsomeof

theirownthinkingaboutthefuture.

Beforewebeginonthisjourney,aquick“healthwarning”isnecessary.Whatfollowsisnotintendedto

bethefinalword.Thinkingaboutandshapingthefuturemustalwaysbeaniterativeprocess;aprocess

whichevolvesovertimeasnewchallengesemergeandbettermethodsofinvestigationaredeveloped.

Thisreportisalsonotintendedtobeasubstituteforfirmsandpractitionersdoingtheirownscenario

thinkingaboutthefuture.Indeed,westronglyencourageorganisationstoutilisesomeoftheirown

substantialbrainpowertoaddressthosespecificrisksthatarelikelytohavestrategicimpactsinboth

theshort-andthelong-term.Butthisshouldprovideausefulstartingpoint.

introduction


executive summ

aryExecutive summary• TheFutureRiskserieshassoughttounderstandwhatrisksarelikelytofacetheinsuranceindustry

overfuturegenerationsandwhatrolethesectorcanplayinbuildingasecureandprosperousworld.

• Scenarioplanning,broadlydefinedintermsofnarratives,dialoguesanddiscussionsaboutthe

futurehasbeentheapproachmostcloselyfollowedthroughouttheseries.

• Inordertoinvestigatesomeofthemanyrelationshipsbetweenthedifferentrisksconsideredover

thecourseoftheseries,thefinalreportdevelopsonelastscenario–afictionalnewsarticlefrom

theyear2030.

• Thenewsarticleillustrateshowtheinsuranceindustrycanplayanimportantrole,insupporting

economicgrowthanddevelopment,inimprovingadaptationtoclimatechange,infacilitating

adequateretirementincomesinthefaceofglobalageingandindrivingimprovementsinrisk

managementrelatedtothedevelopmentofnewtechnology.

• Buttheindustrycannotworkalone.Governmentsandpolicymakerswillplaypivotalrolesindetermining

theworld’sfuture.Consequentlypublicopinion,which“constrainsorcompelspoliticalaction”willbe

criticalindetermininglocal,nationalandinternationalresponsestodifferenttypesofrisk.

• Toshedsomelightonpublicopinionabouttherisksdiscussedovertheseries,wecommissioned

IpsosMORItosurveyasampleofglobalcitizensfromaselectionofdevelopedanddeveloping

countries.Ourfindingsindicatethatoverpopulationandrisingincomeinequalityareperceivedtobe

thegreatestrisksformanyoftherespondents.

• WealsoconductedaseparateopinionpollamongstCIImemberstotapintotheviewsofrisk

specialists.Whencomparingtheresultsofboth,wefindthattheremaybematerialdifferencesin

riskperceptionsbetweenriskspecialistsandthegeneralpublic,particularlywithrespecttothe

occurrenceofcybercrimeandterrorism.

• Moreworkisneededtoidentifytheextenttowhichperceptionsdiverge,butclearlytheinsurance

industryhasakeyroletoplayineducatingandinformingthegeneralpublic,nottomention

policymakers,onmanyoftheglobalrisksthatlieahead.

• Bybuildingonthe2030newsarticleaswellastheresultsfromthetwoopinionpolls,thepenultimate

chapterofthereportsetsoutsomehighlevelrecommendationsfortheinsurancesector.

• Wearguethattheextenttowhichtheindustryisabletoevolveasaprofession,isabletoinnovatein

theconsumerinterest,tocommunicatewiththepublicaswellaswithgovernmentandpolicymakers,

andtomakesenseofdiverseandcomplexrisksthrougharangeofstakeholders,willdeterminethe

sector’sfuturerelevancetothesocietiesitserves.

• Theinsuranceindustry’spastshineswithcreativityandinnovationwhichhasallowedittocontinue

providingaservicethatiscentraltothefunctioningofahealthyeconomy.Itiscrucialthatthe

industrycontinuestoplaythisrole,forasthisserieshasrepeatedlyshown,asoundandstable

insuranceindustry,hasakeyparttoplayinbuildingasecureandprosperousfutureforusall.


Approaches and methods (revisited)

The problemThisserieshassoughttoidentifyrisksthatarelikelytoshapetheworld’sfutureanddiscusswhattheir

potentialimplicationsmightbeforsociety,theinsurancesectorandfinancialservicesingeneral.

Identifying a solution: methodology

Scenario planning

Webegantheseriesbynotingthattherearemanyperilsofprediction.Historyislitteredwithexamples

ofrelativelyshort-termpredictionsthathaveturnedoutwrong,sotryingtoforeseeprecisetrendsand

eventstwentyyearsorsofromnowislikelytobe,apartfrominsomeexceptionalcases,adangerous

exercise–especiallywhentherearemultiplevariablesinvolved.Itismorerewardingtobuilda

numberofpossiblemodelsoftheworldorscenariosdescribingdifferenttypesoffutures.Thisallows

policymakersandstrategiststoidentifyandconsiderthetypesofresponsestheymightneedtoadopt

shoulddifferentstatesoftheworldemerge.Thereforescenarioplanning,broadlydefinedintermsof

constructingcompellingnarratives,discussionsanddialoguesonthefuture,hasbeenthemethodmost

closelyfollowedthroughoutthisseries.1

Building the scenarios

Inordertobuildscenariosonthefuture,thisseriesofpublicationsbeganbyundertakingextensivedesk

andsurveyresearchtouncoverkeyriskdriversaroundfour themes: socioeconomics, demographics,

climate change (including energy security) and technology.Thisapproachisconsistentwithsimilar

scenariobuildingprojects2thoughtheinitialresearchstageisseldompubliclyreportedinfull.Inlight

oftherisksandkeyriskdriversidentifiedduringthisfirstphase,weinvitedworldleadingexpertsfrom

amultitudeofdisciplinestowritedetailedessays(2,500–3,000words)providingtheirviewsonwhat

theserisksmightmeanandwhatactioncanbetakentomitigatethem.

Twentyrenownedexpertsrespondedtoourcallforevidence,providingnarrativesaboutthefuture.

Weareextremelygratefulfortheirinsights,whichhaveilluminatedthisseries.Usingtheiranalysis

coupledwiththeresultsofourinitialdeskandsurveyresearch,eachreportdevelopedthreescenarios:

anupside,centralanddownside,outliningdifferentstatesoftheworlddependingonthetypesofpolicy

measuresdeployedbygovernmentsandtheactionstakenonthepartoftheinsuranceindustry.Intotal

then,wedevelopedtwelvedifferentscenarios–threeseparatescenariosforeachtheme.Thesewere

notmeanttobeconcreteforecastsofthefuture;rathertheywereintendedtoprovidethebasisonwhich

firmscouldbasesomeoftheirowninternaldiscussionsaboutwhatthefuturemightholdandhow

differentfirmsmightreactasdifferentfuturesunfold.

1 Foranin-depthdiscussionoftherelativebenefitsofscenarioplanningread,GovernmentOfficeforScience(2009)“ScenarioPlanning:GuidanceNote”

2 Seeforexample,OECD(2003)“EmergingSystemicRisksofthe21stCentury”,andWorldEconomicForum(2012)“GlobalRisks2012:SeventhEdition”

approaches and methods


Understanding interactions between the risks

Throughouttheserieswetooktheviewthat,inthefirstinstance,athematicapproachtoidentifying

futureriskswouldbesimplesttoconductaswellasprovidethemostunderstandablemessages

tokeepreadersengaged.Butthereisoneobviousproblemwiththis–manyoftherisksidentified

overthecourseoftheseriesdonotfitneatlyintoonespecificthemeoranother.Indeed,manyofthe

risksinteractwithoneanotherintensifyingsomeriskswhilstreducingothers.Itwould,therefore,be

somethingofanoversightifwedidnotaddresssomeoftherelationshipsbetweenthedifferentrisks

andriskdriversbeforetheseriesisbroughttoaclose.

ConsistentwiththeapproachtakenbytheWorldEconomicForum,3inordertoinvestigatesomeofthe

relationshipsbetweenthedifferentrisks,thefollowingchapteroutlinesonefinalscenariobasedon

alloftheresearchconductedsofar.Thescenariotakestheformofavividfictionalnewsarticlefroma

respectedinternationalaffairspublicationduringtheyear2030andincludesreactionfromexpertsat

thetime.WeinterspersethiswithquotesfromtheFutureRiskseriestodemonstratesomeofthesource

material.Finally,weusethisnewsstoryalongwiththelatestsurveyresearchintoperceptionsabout

futurerisks,astheevidencebaseforsomehighlevelrecommendationsfortheindustry.

3 Thisisconsistentwiththeapproachtakenin:WorldEconomicForum(2009)“TheFutureoftheGlobalFinancialSystem:ANear-TermOutlookandLong-TermScenarios”



Future risk mind map: some of the risks considered during the series

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Itmaybehardtoimaginenow,butlessthantwentyyearsago,theworldwasconcernedaboutarepeatofa1930sstyle

Depressionandaprolonged“lostdecade”.Thefinancialcrisishadturnedintoasovereigndebtcrisisthreateningtobringdown

Europe,USpolicymakerslookedparalysedwhenitcametodealingwiththeirowngovernmentfinancesletalonemaintainingan

effectiveandcredibleforeignpolicy,andChinaandIndiawerestillintheprocessofdefiningtheirrolesontheworldstage.And

let’snotforgetthoseturbulenteventsintheMiddleEast.Inadditiontotheseissues,thereweregrowingconcernsaboutglobal

ageingandclimatechangewhichthreatenedtoexacerbatemanyoftheseproblems.

Thepanaceawasseentobeincreasinggrowthandinvestmentintechnology,butevenherethereweregrowingconcernsthat

“blackswan”4eventslikethefailureoflargescaleITsystemsrunningpowerstationsorwidespreadcybercrimemightdeter

furtherinnovation.

Global leadershipRemarkably,theworldpulleditselfoutofthemire.Inthefirstinstance,thiswasduetoeffectiveandcollaborativeglobal

leadership.Oneoftheworld’sleadingprofessorsofpoliticaleconomy,ElizabethFaulkner,FellowoftheInstituteof

InternationalStudies,believesthattheG20Summitof2016wasthecrucialturningpoint.Nicknamed“Thesummitfor

growth”ProfessorFaulknerhasarguedthatitsetthe“foundationsforbetterrelationsbetweenthedevelopedworldand

thefastgrowingemergingeconomies”.Thecrucialtradeagreementwasstruckat4amonthefinaldayoftheSummit.

Followingintensenegotiationsfromleadersonallsides,itwasagreedthatChinaandIndiawould,overatwentyyearperiod,

substantiallyreduceimporttariffstoallowforgreaterWestern-ledexportstoAsia.TheUSandEuropealsoagreedtoreduce

theirownimporttariffstostimulategreaterdemand,particularlyforprimarysectorgoodsfromdevelopingcountries.Indeedit

wasacceptedbymajorEUpowersthatthenowinfamousCommonAgriculturalPolicyshouldberepealed.

Inheracclaimedbook,“Versailles to Seoul: Summits that changed the World”,ProfessorFaulknerreflectsonthefatefulG20

agreement:“...thiswastheEurekamomentwhentheworld’smajoreconomicpowersdecidedtoactinaccordancewiththe

long-terminterestratherthanforshort-termpoliticalgain.Withsuddenvigourandpurpose,theyallrealisedthatwithout

immediateactiontoaddresstheimbalances(inparticularrelatedtoglobalconsumption),notonlywouldabsolutelevelsof

povertyrise,butthatthestabilityofgovernmentsandregimeswouldsooncomeintoquestion.Circumstancesmeantthattheir

handswereforced,butworldleadersstillhadtocommit,andthankfullytheysteppeduptotheplate”.

TheG20agreementsetthebuildingblocksfortherebalancingoftheglobaleconomywitnessedoverthelastdecade.Itseems

strangenow,butbackin2012,thenUKChancellorGeorgeOsbornenotedhowtheUKexportedmoretoIrelandthantoallofthe

BRICcountriescombined(BRICcountriesaccountedforjust8.7%ofUKexports)5.Howthingshavechanged–todayBRICcountries

accountfornearly50%ofUKexports!

4 “Blackswan”eventsarelowlikelihood,veryhighimpactevents.Theyare,bytheirverynature,hardtopredict.InFutureRisk4:“HowTechnologyCouldMakeorBreakourWorld”,DrPeterTaylordiscussesblackswaneventsatsomelength

5 StephanieFlanders(2012)“Re-routing UK trade”,articlefortheBBCavailablefrom:http://www.bbc.co.uk/news/business-17690854[lastaccessed9December2012]

Special report: The remarkable rebound

Special report

The International06February2030


“ Strategists...must fundamentally reconsider the structure of various current global institutions. The G8, for example, will likely become obsolete as a body for making global economic policy. The G20 is already becoming increasingly important and this is less a short-term consequence of the ongoing global financial crisis than the beginning of the necessary recognition that Brazil, China, India, Indonesia, Mexico, Turkey and others are becoming global economic powers.

”ProfessorJackGoldstone(2012),excerptfromessayforCII Future Risk Report 5

ButtheG20Summitwasnottheonlyreasonforwhatsomehavetermedthe“remarkabledecade”.In2016Europewasstill

stutteringbetweentwoextremes–fullfiscalandmonetaryunionontheonehandorthebreakupofthesinglecurrencyonthe

other.ForanumberofyearsEuropeanleadershadtriedtofudgetheissue,takingmeasurestopreventcountrieslikeGreece

fromdefaultingontheirdebts,butthesemeasureswereneverseenasmorethanstickingplasterandalong-termsolution

wasoverdue.Finally,inthewakeoftheG20(nowtheG30)successandbuoyedbyanumberofcoreEuropeanmemberstates

emergingfromrecession,inlate2017,Europeanleadersfinally“graspedthenettle”andsettledonadirectresolutionpathto

fullfiscalunionandmostsensationallyofall,politicaluniontoo.

NoonecouldsaythatthetransformationtowardsanewanddeeperEuropehasbeeneasy,andtheprospectofforegoinga

degreeofnationalsovereigntyledtoprotestsandsomeriotsintheearlyyears,but,onbalance,itcouldbearguedthatthe

firstsevenyearsofaFederalEuropehavebeenfarbetterthanthealternativeofapainfulEurozonebreakup.Thenumbers

speakforthemselves–allcountries,eventhosefromthesocalled“periphery”haveexperiencedthreeyearsofcontinuous

growth,decliningunemploymentandstable(real)inflation.Partofthisimprovementisofcoursedowntoincreasingtradewith

thedevelopingworldfollowingthegradualremovalofimporttariffsandsubsidies,buttheabsenceofsuddencrisesrelated

tothesolvencyofgovernmentshasalsohelpedleadtoasurgeinconfidenceintheEuroareaandagrowthininvestment

spending.

“ In the bad scenario, the US economy slows sharply. The breakup of the Eurozone leads to a massive financial crisis in Europe, causing US unemployment and fiscal deficits to rise further...The overriding lesson is that there is more at stake in current economic policy debates in Washington and Brussels than most people realise.

”DrUriDadush(2012)reflectingontheimplicationsfortheUSeconomyofaEurozonebreakup.ExcerptfromessayforCII Future Risk Report 2

A private sector led recoveryWhilsttheinternationalagreementspavedthewayforaneconomicrecovery,thisstillneededtobesecuredthroughasurgein

privatesector-ledgrowth.Inthiscontext,anotherimportantfactorinexplainingtheremarkabledecade,hasbeenthecontinual

growthoftechnologyrelatedbusinessandhigh-endmanufacturingacrossWesternEurope.

ThestoryofIrishinventorandentrepreneurTomMcKinneysoundsfamiliar.Likemanygreatinnovatorshebeganatanearlyage,

buildingcomponentpartsforcomputersandmobilephonesfromhisparents’garagebeforehewas12yearsold.Sixyearslater

hehaddevelopedtheworld’smostefficientcoolingdeviceforlaptopsandtablets–aninventionthatwouldhelpmakehima

millionairebythetimehewas20.


Butitwasnotallplainsailing.Inhisautobiography,“Dreaming of Ireland’s Silicon Valley”McKinneywritesaboutthetrials

andtribulationsofgettingaproductfromprototypetomassdistribution.“IknewIhadagreatproductbuthadnoideaabout

howtogetittomarket.Iwasatechnologywhizznotabusinessman”.UltimatelyitwashisUniversity’ssciencedepartment

thatputhimintouchwithanumberofprospectivefinanciers,includingJuliaTammy,whowouldbecomehisbusiness

partnerandChiefOperatingOfficer.McKinneynotesthat“Juliaknewaboutthingslikerecruitmentandfinancewhichbecame

absolutelyinvaluableaswewouldsoonfindout.”

On05March2018,justonemonthafterthebusinesshadstartedtomanufacturesignificantquantitiesofthenewfans,one

ofthemachinesbeingusedinthemanufacturingprocesscaughtfire.Anindustrialaccidenttranspiredwiththeentireplant

catchingablazedestroyingvirtuallyalloftheequipment,thoughfortunatelynoonewasinjured.

“Thiscouldhavebeenthedeathoftheprojectandpotentiallythebusiness”saidMcKinney,“butourinsurerspaidoutforthe

damagetoequipmentandbuildingsaswellasforlossesweincurredthroughlackoftrading.Thiscrucialsupportallowedus

torebuildinlessthanthreemonths...Moststart-upsthinkachievingadequatefundingfrominvestorsistheHolyGrailandof

coursethisisanecessarycondition,butwealsolearnedfirst-handtheimportanceofhavingourrisksfullyunderwritten”.

COOTammycontinuestospeakwiththefirm’sbrokersonaregularbasistoensurethattheirrisksarefullyunderstood

byallpartiesconcernedasthebusinesscontinuestoevolve.Speakingabouttheirbrokersinarecentinterviewwithtrade

publicationInsuranceToday,Tammynotes,that“...theirin-depthknowledgeofthespecificbusinessarea,andwillingness

andabilitytofindtheappropriatecoverforsignificantandcomplexriskshasbeenanimportantfactorinoursuccess”.

ThestoryofMcKinneyandTammeyisanexampleoftheentrepreneurialspiritthathasgrippedmuchofWesternEurope

overthelastdecade,fuelledbytheinternationalfreetradeagreements,andsupportedbywillingandablefinancialservices

intermediarieswhohaveunderstoodtherisksrelatedtonewbusinessventures.AccordingtotheInternationalOrganisation

forEconomicProgress,thenumberofEuropeantechnologystart-upbusinesseshasincreasedfive-foldsincethepathtoEU

politicalandfiscalunionwassetoutin2017.

“ ...there is a huge task in re-orientating Britain’s exports towards these fast-growing economies and to building up the sectors in which the economy has comparative advantage, and in goods and services that are in demand. They include, clearly, advanced manufacturing, pharmaceuticals, aerospace, and financial, business and professional services. They also include knowledge-based sectors which have so far barely made it out of the laboratory.

”

DavidSmith(2012)excerptfromessayforCII Future Risk Report 2

“ Scientists and insurers must gaze through the same pane of glass. Scientists’ raison d ’être is understanding nature and insurers also need to understand nature as the prerequisite to judging risk. Insurers and scientists, therefore, share the same need to understand our world.

”DavidWillettsMP(2012)excerptfromessayforCII Future Risk Report 4

Butitisnotjustinthedevelopedworldwhereinnovationhasprospered.Rightacrossthedevelopingworld,includingin

someofthehistoricallypoorerregionsofSub-SaharanAfrica,entrepreneurialspiritisaliveandwell.Withtheabolitionofthe

CommonAgriculturalPolicy,therehasbeengreaterdemandfromEuropeforcheaperAfricanimports.

BekeleisapotatofarmerfromEthiopiawhosebusinesshasgonefromstrengthtostrengthsincetheCAPwasrepealed.From

thestartingpointofasmallfamilyrunbusiness,ithasgrownintoacrucialpartofanincreasinglyvibrantlocaleconomy.

AndfromtheprofitsthatBekelehasearnedthroughhiscoreventurehehasbeenabletoexpandintootherareas,including

Ethiopia’sblossomingfloriculturesectorwhichhasbecomebyfarthelargestintheworld.


Bekele’sabilitytoharnessnewtechnologytoimprovethebusiness’sproductivityisakeyreasonforitssuccess.Butlikethe

exampleofMcKinneyandTammy,hetoohasbenefitedfromexternalfinancialassistance.Inaninterviewwithmagazine,

“Entrepreneur Weekly”,Bekelenotestheimportantrolethatmicro-creditandmicro-insuranceplayed.“Twentyyearsago

ourfamilywouldnothavebeenabletoaccessthenecessaryfinancetoinvestintherightsortofequipmenttorunthefarm

properly.Wewerealsoexposedtotheelements.Weatherherecanbequitesevereattimes,aseriousriskgiventhenature

ofourbusiness.Affordablecreditandinsurancehas,therefore,providedthemuchneededfundingandprotectiontohelpthe

farmthrive.”

Importantly,Bekelebelievesthatexternalfinancialassistancelikethiscanbea“win,win”forallconcerned.“Byprovidingus

withthemeanstogrowthebusiness,wehavebeenabletobuildamodern,sustainablefarmthatcanwithstandsignificant

environmentalhazardsincludingdrought.Weare,therefore,farlessofafinancialrisknowthanwhenwestartedout,andwe

arealsoaconsistentsourceofpremiumincomeforourinsurers.”

Microfinancehasgrownten-foldinthelastfiveyearsandnowsupportsover1.5billionpeoplelivingintheworld’spoorest

areas.Ithasalsohelpedtosupportthedevelopmentofthousandsofothermicro-businesseswhichprovidemuchneeded

incomeandemploymenttolocalcommunities.

“ Qualitative evidence from New York University implies that, when combined with micro-saving – small deposit accounts for those on low incomes – the social value of micro-insurance could be a major step towards improving the wellbeing of the world’s poor. So far, take-up of micro-insurance remains low across much of the developing world. But this should not deter the industry from trying to transform an innovative concept into a financial service that provides tangible benefits to potentially billions of people worldwide.

”BenFranklin(2012),Spotlight on Economy and Society,specialfeaturearticleforPostMagazine

Resilience against climate change Historicallytheworld’spoorestregionshavebeentheworstaffectedbyextremeweatherevents–actingtointensifyother

riskfactorsfacingthedevelopingworld,theworstofwhichincludewar,famine,povertyanddisease.Butinthedeveloped

worldtoo,weathereventscanwreakhavocincludinglossoflifeasHurricaneKatrinademonstratedsotragicallyaquarterof

acenturyago.

“ Climate change, while a discrete challenge, is likely to act as a ‘risk multiplier’, interacting with other trends, exacerbating existing tensions and insecurity, and making it even more difficult to address poverty, disease, food and water insecurity.

”ProfessorSirJohnBeddington(2012),CII Future Risk Report 3

Thankfully,despitethenumberofrecordedextremeweathereventsincreasingoverthelasttenyears,thenumberof

disaster-relateddeathshasactuallyfallenandthedisruptiontoeconomicactivityhasremainedrelativelystable(after

adjustingforinflation).Therecanbenodoubtthattheincreasingprevalenceofprofessionalriskmanagementincludingthe

provisionof(micro)insurancehashelpedindividualstounderstandtheenvironmentalrisksthattheyfaceandhowtheycan

reducetheirexposuretothem.Butintheviewofclimatechangeexperts,includingtheIndianGovernment’sChiefScientific

AdvisorDrAruniShah,recentimprovementsinadaptingtoclimateriskwouldnothavebeenpossiblewithoutalsohaving

governmentsonboardtopushthroughimprovementsininfrastructure.


“Whilstontheonehandtheworld’spopulationhasbecomemoreconcentratedandurbanisedincreasingthepotential

adverseimpactofanevent,thishasbeencounteractedbygovernmentsensuringthatpeoplemovingintocitiesgravitate

towardsregionsthatarerelativelysafefromnaturalhazardslikeflooding.Thishasbeenaidedbygovernmentsinvestingin

crucialinfrastructurelikeflooddefencesandearlywarningsystems–supportedbytheUnitedNation’sGlobalHazardRelief

Programme”.DrShahalsonotesthatimprovementsintechnologyandmanufacturingprocesseshavemeantthat“highquality

buildingmaterialshavebecomecheaper,enablingtheconstructionofresilientnewhomesthatcanwithstandsomeofthe

impactwhentheworsthappens.”

Eachofthesefactorshashelpedleadtoastarkimprovementinthechancesforsurvivalfollowinganextremeweathereventas

wellashelpingtolimitdisruptiontotheeconomy.Morecanstillbedonetodriveevenbetterresilience,buttheinternational

communityhastakenanumberofimportantfirststepsincludingacknowledgingtheproblemandbeginningtotakeeffective,

collaborativeaction.Thishasbeensupportedbytheinsuranceindustryunderwritingclimateriskandspreadingknowledge

andawarenesstoboththegeneralpublicaswellastopolicymakers.

“ There is an enormous potential for insurers to provide economic incentives, data and modelling skills to help to manage risks more sustainably by encouraging adaptation to climate change.

”ProfessorDavidCrichton,CII Future Risk Report 3

“ Comprehensive risk reduction, aligned with climate adaptation measures can help developing countries manage the risks they face. Insurance risk transfer can be a useful component in this strategy, if correctly designed and implemented.

”DrSwenjaSurminski,CII Future Risk Report 3

Addressing climate changeAdaptingtoenvironmentalriskis,however,justonepartoftheclimatechangejigsaw.Ithaslongbeenargued,forinstance,

thatglobalwarmingincreasestheextenttowhichextremeweathereventsoccur,therebyraisingthechallengesandassociated

costsofadaptation.

Backin2011,thethenInternationalEnergyAgency’sChiefEconomist,DrFatihBirol,outlinedanumberofpossibleclimate

scenariosfordifferentassumedlevelsofenergyconsumptionupuntil2035.6Inthecentralscenario,Biroldescribedaworld

whereenergydemandwoulddoubleovertheperiodasaconsequenceofpopulationgrowthandeconomicexpansion,

particularlyinthedevelopingworld.This,hepredicted,wouldresultinglobalwarmingexceedingtheinternationallyagreed

2degreecelsiustargetwhichcould,hesaid,haveseriousimplicationsforthewellbeingofpopulationsinmostatriskregions.

Remarkably,theworldremainsoncourseforbeatingthe2degreetarget.Theturningpointwas2015,whenanewdealknown

asKyotoIIwasdrawnup.It“lockedin”theprinciplesof“contractionandconvergence”underwhichdevelopingcountries

wouldbeallowedtogrowemissionswhiledevelopedcountriescontractedtheirsuntilthefiguresconverged.Itpavedtheway

forfaircutstoemissionsacrossthedevelopingworld–andintheprocessprovidedaroadmapforamoresustainablefuture.

6 SeeDrBirol(2012)“EnergyandClimateChange:LookingatFutureTrendsandRisks”.ChapterinCII(2012)FutureRisk3:ClimateChangeandEnergySecurity


TheWest,includingtheUnitedStateshasledbyexample,usingtheeconomicproblemsof2012–14astheprecursorforan

industrialpolicyfocusingoninvestmentinsustainablesectors.Therehasalsobeenanoticeableshifttowardsrenewable

sourcesofenergyinChinaandIndiaastheyseektomitigateagainstsomeoftheenvironmentaland,consequently,health

risks,relatedtofastpacedeconomicdevelopment,particularlyindenselypopulatedareas.Indeed,atagloballevel

therehasbeengreaterfocusonenergyefficiency–includinggreentechnologiessuchascarboncaptureandstorage.In

shortthen,whilsttheworldhasgrownsomewhatwarmer,forthemomentatleast,itappearsasthoughwehavedodged

thedoom-mongersworstcasescenarioofpassingirreversibletippingpoints.

“ Action to increase energy efficiency is the most important single step to tackling climate change, but not enough is being done. Alongside this, government support for renewable energy must be protected and expanded, even in the context of a challenging economic climate.

”

DrFatihBirol,excerptfromessayforCII Future Risk Report 3

“ Rising temperatures will affect weather and precipitation patterns, sea level will rise, heatwaves will increase, and there is the potential for an increase in extreme events, such as droughts, flooding and storm surges.

”ProfessorSirJohnBeddington(2012),excerptfromessayforCII Future Risk Report 3

Defusing the longevity time bombOverthelasttwentyyearsorso,averagegloballifeexpectancyhasincreasedfromaround70to80yearsofage.Duringthis

period,therehavebeendramaticimprovementsinthetreatmentofheartdisease,cancerandHIV.Therehavealsobeen

significantimprovementstolivingconditionsaroundtheworld,helpingtoensureasignificantreductionintheextenttowhich

waterbornediseasehasaffectedsomeoftheworld’spoorestregions.Sowhileriskfactorslikeovereating,smokinganddrinking

alcoholremainseriousconcerns,theworldhasmadesignificantprogressintacklingsomeofthemaincausesofearlydeath.

Coincidingwithpeoplelivinglonger,familieshavebecomesmaller.Fertilityhasfallenfromroughly2.5childrenperwoman

in2010toaround2childrentoday.Thiscontrastswithanaverageof5childrenperwoman80yearsago.

Longerlifecoupledwithlowerfertilitymeansthattheworldhasgrownolder.Yetgovernmentshavenotbecomecrippledby

ever-increasingdebtlinkedtotheirageingpopulationsassomehadpredicted.Policymeasureshavehelpedinthisregard.

Forexample,manycountrieshavetakenmeasurestoraisestateretirementageinlinewithrisinglongevity,toabolish

default/mandatoryretirementages,andtoinvestinthere-skillingofthelabourforce–eachofwhichhasledtomorepeople

workingforlonger,therebyreducingtheburdenonthestateforfundingretirement.Andwithfallingfertilityrates,wehave

experiencedtheshort-termbenefitofhavingfeweryoungerdependants.Indeed,overthepastdecade,manyWesternbased

countrieshaveactuallyexperiencedfallingdependencyratios,7thoughforhowlongthistrendwillcontinueishardtosay.

7 Dependenceratiotellsushowmanyyoungandoldpeopledependonthoseofworkingage.Itcanbecalculatedbydividingthenumberofpeopleaged0–14andthoseaged65andoverbythenumberofpeopleaged15–65


“ ...because of low fertility rates, the labour force as a share of total population has been increasing and is expected to increase through 2050. Thus one of the most widely cited fears about population ageing – that there will be a crushing rise in elderly dependency...appears unfounded for the world as a whole.

”DavidBloom.AxelBirsch-Supan,PatrickMcGeeandAtsushiSeike,(2012),excerptfromCII Future Risk Report 5

IntheopinionoftheGlobalMonetaryFund’sChairmanandacclaimedlabourmarketeconomist,ProfessorHanaLee,economic

growthhasalsoplayedamajorroleinensuringthatgovernmentshavenotbaulkedunderthefiscalweightofanageing

population.“Withglobaldemandhavingincreasedbeyondourbesthopesoverthelasttenyears,thishasensuredastrong,

healthylabourmarket.Unemploymenthasfallenbyastaggering20%overthisperiod.”

Whenaskedaboutwhatmighthavehappenedhadeconomicgrowthbeenweaker,ProfessorLeeadds“...ifunemployment

hadriseninlinewithourworstcase,governmentswouldhavebeenhithardtwice–intheshort-termthroughtheprovisionof

automaticstabilisers(i.e.unemploymentbenefit),andinthelong-termthroughtheprovisionofgreaterretirementbenefitto

thosewhohadnotaccruedsufficientsavingsduringweaklabourmarketconditions.Compoundingallofthiswouldhavebeen

poortaxationrevenueovertheentireperiod.Insum,itwouldhavebeenfiscallybadnomatterwhatpoliciesgovernmentshad

takentoincentiviseworkinginlaterlife.”

Thehealthymacroeconomicenvironmenthasreapedotherbenefitstoo–assetprices,forexample,havebeenrising,

increasingthesizeofpensionpotsandtherebyconsolidatingthebenefitsofsavingforretirement.Thepensionsandasset

managementindustrieshavealsoplayedtheirpartinthisregard,seeminglysuccessfulin:a)communicatingthemessage

thatpeoplemustsaveforthefuture,b)inimprovingthetechniquesusedtomodellongevityrisk,andc)inunderstandingand

managingassetpricevolatility.Alloftheseelementshaveboostedtrustandconfidenceinthefinancialservicesindustrywhich

has,inturn,ledtoatighteningofthesavingsandprotectiongap.

“ Governments, employers, insurers and reinsurers must work together to achieve a long-term, sustainable infrastructure for retirement provision.

”“ Considering a number of alternative scenarios for each disease both in terms of diagnosis and treatment, and how these interact with different scenarios for other diseases, will help achieve an understanding of potential uncertainty in future experience.

”DanielRyanandRonWheatcroft,excerptfromCII Future Risk Report 5

Role of technologyOverthelasttwentyyears,increaseduseoftechnologyhascontinuedtodriveimprovementstomanyareasofourlives.This

articlehasalreadytouchedonthiswithrespecttoadaptationtoclimatechangeandsupportingeconomicgrowth,butarguably

thereisnobetterillustrationthanwithrespecttocareoftheelderly.

Twodecadesago,therewereconcernsthat,astheworldgrewolder,governmentsandindividualswouldstrugglewiththecosts

ofcaringforthoseinlaterlife.InEnglandandWales,forexample,itwasestimatedthattheaveragecostofacarehomewas

over£30,000perannum–acostthatinvariablyfellontheindividualortheirfamily.Itwasarguedthatthiswasanunsustainable

position8sinceitmeantthatthoseenteringcareriskedlosingvirtuallyalloftheirassetsandwealthinpayingforit.

8 Foradetailedanalysisofthelong-termcareproblemseeCommissiononFundingofCareandSupport(2011),“FinalReport”


Sincethattime,oneofthebiggestgame-changersincareoftheelderlyhasbeenthedevelopmentoftelecare.Thishasallowed

peopletostayintheirownhomesforfarlongerthantheywouldhavebeenabletointhepast.Improvementsintechnology

havemeantthatnew,cheaperandmoreeffectivesystemshavebeendevelopedtomonitorhealthandwellbeingathome

(suchasidentifyingincreasingtripstothebathroom,orfallingoutofbed)aswellasrespondingtoimmediateneeds(suchasa

cookerbeinglefton).

Thesetypesofsystemswereavailabletosomeinthefirstdecadeofthiscentury,butweretooexpensiveandthetechnology

toocrudetobewidelyused.Today,telecareiscommonplace,providingassistancetomillionsofelderlycitizensintheUKand

evenmorearoundtheworld.Inturn,theabilitytoliveathomeinlaterlifehasbeenaidedbyimprovementsinthetreatments

ofdementiaandphysicaldisability.AccordingtoDaphneBaudrillard,headofglobalcharityAgeUnited;“thankstoanumberof

technologicalandscientificbreakthroughs,oldageisstartingtobetransformed.Peopleareenteringtheirlateryearswithless

anxietythaneverbefore.Wecanfinallystartcelebratingrisinglifeexpectancy–thegreatestbarometerofhumanprogress.We

mustconsolidatethesegainsintheyearsahead”.

Managing technological risksWhilsttechnologicaldevelopmentshavecontinuedapace,thenumberoftechnologicalaccidentshasremainedrelatively

stableandwehaveexperiencedfewoccurrencesofsocalledtechnologicalblackswanevents.Itisworthremindingourselves

thatepisodeslikethe“FlashCrash”of2010andthepowerblackoutsacrossIndiain2012suggestedanewdawnof

technologicalfailuresthatcouldseverelydisrupteconomicactivityputtinglivesatrisk.Cybercrimeexacerbatedthesefears

withviruseslikeStuxnetthreateningtosabotageimportantindustrialinstallations.9

Thankfullywehaveaverteddisastergrowingevermorecompetentinusingtechnology,inunderstandingitslimitationsand

riskswithoutthedownsideeffectofdeterringfurtherinnovation.Indeedinnovationhasbeenkeytoensuringthatcomputer

systemshaveremainedonestepaheadofthosewhowishedtocausedisruption.Andgoodriskmanagementpracticeshave

beenadoptedbycorporationsandgovernmentsbasedonthezerofailureprinciplesusedby“highreliabilityorganisations”.

Thisiswherenoweaklinksincomplexsystems,howeverseeminglyminor,areignored.Thisreducesthelikelihoodofcascade

failure–aphenomenonmostfamouslyandtragicallydemonstratedbytheChallengershuttledisasterin1986.

TomDiver,CEOofreinsurancefirmHanoiRe,believesthatwehavesignificantlyimprovedourabilitiestounderstandthe

risksassociatedwithcomplexsystems.Hearguesthat“comparedwithpractisesevenadecadeago,thetimeandexpertise

spenttestingandinvestigatingthepossibleglitchesincomplexsystemsandmachineryhasgreatlyimproved.Nostoneisleft

unturned.Andthisisaniterativeprocess–justbecausetherehasnotbeenaproblemforanumberofyearsdoesnotmeanwe

justassumethatallisfine.Wegobackandlookagain.Asaresult,weareabletohaveagooddegreeofconfidencethatsome

ofthegreatestengineeringprojectstakingplacerightnowwillsucceedashoped.”

“ Ultra large scale systems represent major challenges to the engineers responsible for the construction and ongoing maintenance of the constituent systems, and they also present major challenges to anyone concerned with the measurement and control of risk.

”ProfessorDaveCliff,excerptfromCII Centenary Report 4

Insummary,technologicalprogresshasreapedvastbenefitsandbeenamaindriveroftheremarkabledecade.But,arguably,

thesesuccesseswouldhavebeentempered,wereitnotfortheadoptionofproperriskmanagementtechniques,toensurethat

risksassociatedwithnewtechnologiesandlargescalesystemshavebeenappropriatelymitigated.

9 JonathanFildes(2011)“Stuxnettargetsandspreadrevealed”,articlefortheBBC.Availablefordownloadfrom:http://www.bbc.co.uk/news/technology-12465688[lastaccessed9December2012]


Why so remarkable – the role of financial servicesThelastdecadehasbeentrulyremarkable.Thereare,ofcourse,manychallengesahead,butfewcouldarguewiththefact

thatthereisagenuinesenseofoptimismaboutourfuture–akintotheearly1990safterthefallofcommunisminCentral

andEasternEurope.Thereisarealbeliefthatgloballeadersareabletoworktogethertochartasafercoursethroughshared

political,social,economicandenvironmentalproblems,andthatcitizensoftheworldareinturn,abletomakesomethingof

themselvesandgivesomethingbacktotheirlocalcommunities.Financialserviceshasplayedanimportantroleinallofthis

–supportingtheeconomicrecovery,underpinningeffortstoadapttoclimatechange,reducingtheprospectsforpensioner

povertyandmitigatingtechnologicalrisks.Butnothingworksinisolation–allthepieceshavecometogetherattherighttime

providingthebestconditionspossiblefortheremarkabledecade.Longmayitcontinue!

Summarising the “remarkable decade”

Reforms to the international economy

• Worldleadersworktogethertoreformglobaleconomicimbalances.

• EUagreespathtofullfiscalaswellaspoliticalunion.

• Tradespecialisationtodevelopasustainableinternationaltradingsystembasedoncomparativeadvantage.

A vibrant private sector

• Economicdevelopmentsupportedbyeffectivefinancialservicesintermediariesincludinginsurersandbanks.

• Privatesectorledgrowthsupportedbyeffectivepartnershipsbetweenresearchcentres,entrepreneursand

businessleaders.

Action on climate change: mitigation and adaptation

• Effectiveadaptationtoenvironmentalhazardsledbytheinternationalcommunityandbuttressedbytheeffortsofinformed

insurersandriskmanagers.

• Robustgovernmentactiontoreducefossilfuelemissionsbasedontheprincipleof“contractionandconvergence”.

Improving healthcare, falling pensioner poverty

• Improvementsinhealthcareandlivingstandardscauseadramaticriseingloballifeexpectancy.

• Demographictimebombdefusedthroughmeasurestoextendworkinglivesaidedbytheglobaleconomicrecovery.

Advancesintelecarereducethecostofprovidinglong-termcarefortheelderly.

• Demographicpressuresonpublicfinancesarereducedthroughgreaterprivatesavings–supportedbyimproved

communicationsaboutthebenefitsofsavingandbettermodellingoflongevityrisk.

Dynamic technological change

• Increaseduseoftechnologyhelpsdriveimprovementstomanyareasofourlives.

• Downsiderisks,includingtechnological“blackswans”areavoidedasbusinessleadersandpolicymakersadopta

qualitativeapproachtoriskmanagementfollowingazerotolerancetofailureapproach.


The importance of risk perceptionSofar,thisreporthasexploredsomeoftherelationshipsbetweenthedifferentrisksuncoveredduring

thecourseoftheFutureRiskseriesintheformofavividnewsarticlefromtheyear2030.Buthowdo

membersofthepublicaswellasthosefromtheinsuranceindustryperceivesomeoftherisksdiscussed

throughouttheseries?Thisisanimportantquestion.AsweexploredinthefirstFutureRiskreport,

publicriskperceptionscanactto“constrainorcompelpoliticalaction”.10Gettingriskperceptionright

is,therefore,acrucialpartofensuringappropriateactionbygovernmentsandpolicymakerstoprioritise

certainkindsofrisksoverothersatthelocal,nationalandorinternationallevel.

Inordertoshedsomelightontheviewsofthegeneralpublic,aswellasriskexpertsfromtheinsurance

industry,weundertooktwomajorinternationalsurveys.Thefirstsurveywasapollofmembersofthe

publicacrossfivecountries,eachinseparatecontinentsconductedbyIpsosMORI.Thesecondsurvey

wasapollofCIImembers’viewsregardingasimilarsetofrisks.Membersofthepublicaswellasrisk

expertswereaskedabouttherelativelikelihoodandimpactofanumberofdifferentrisksoccurringover

thenextfortyyears.Thisallowedustoestablishwhichriskswereperceivedtobethemostsignificantby

eachgroup.Resultsfromthetwosurveysarereportedbelow.

Ipsos MORI survey into global public risk perceptions

About the survey

Resultsarebasedonatotalof2,678interviewsconductedinfivecountries:Australia,Brazil,Great

Britain(GB),IndiaandtheUnitedStates(US)(c.500interviewsineach).Countrieswerechosento

ensureadiversemixofdevelopedanddevelopingnationsfromallcornersoftheglobe.Fieldworktook

placebetween6Decemberand19December2011.ThesurveywasconductedusingtheIpsosGlobal

@dvisoromnibusservice–amonthlyonlinesurveyin24countries.Thedatahasbeenweighted.

Pleasenotethatwhiledatahasbeenweighted,takinganonlineapproachincountrieswherethereisa

lowerlevelofinternetpenetration,suchasIndiaandBrazil,meansthatwecannotnecessarilyviewthe

resultsasrepresentativeofthewholepopulation.Rather,weshouldviewthedataasreflectiveofthe

viewsofamoreeducated,affluentor‘connected’group.

The questionnaire

Respondentswereaskedtoranktherelativeimpactandlikelihoodofanumberofrisksoccurring.

Tomeetthisaim,weaskedpeopletoratewhich‘twoorthree’risks(assumingthelikelihoodofeach

happeningwillbethesame)wouldhavethebiggestimpactontheircountry’sfuture.Wethenasked

themtoratethelikelihoodofthoserisksmaterialisingoverthesametimeperiod.Thisallowedus

tocreateariskregisterforeachofthecountriessurveyedbyplottingperceivedimpactagainstthe

perceivedlikelihoodofoccurrence.

10 SeeCII(2012)FutureRisk1:“LearningfromHistory”,p.57

the importance of risk perception


Thelistofriskswaschosenfollowingouranalysisofkeyriskdrivers,setoutinthefirstreportwithinthe

FutureRiskseriespublishedinearly2012.Thelistwasthenrefinedtoensurealimitedsetofoptionstokeep

thesurveysimpleandeasyforrespondentstounderstand.Thefinallistincludedthefollowingoptions:

• Majorterroristattack

• Violentconflict

• Growingincomegapbetweenrichandpoor

• Sustainedeconomicgrowth

• Sustainedeconomicdecline

• Majorworldwideoutbreakofadisease,suchaspandemicflu

• Bigincreaseinthenumberofpeoplewhoareoverweight

• Majorworldwideenergycrisis

• Substantialglobalwarming

• Increaseincatastrophicweatherevents

• Severefreshwatershortage

• Majorcyberattacksongovernmentandbusinesses’computersystems

Global results (public)In reporting “global” findings, results are not weighted to reflect the proportion of the global

population attributable to each country. The results, therefore, just represent the views of our sample

rather than something that could be called a genuine “world view”.

Atagloballevel,over population, income inequality and global warmingwerethethreerisksthatwere

bothconsideredrelativelyhighimpactandhighlikelihood.Cyber attack, obesity and pandemic disease

wereallratedasrelativelylowimpact–thoughobesitycamehighestintermsoflikelihoodacrossallof

therisksthatwereconsidered.Sustained economic declinewasrankedasarelativelylowlikelihood,

butmediumimpactrisk–asimilarstoryformajor terrorist attack.Respondentsperceivedtheriskofan

energy crisisasamediumimpact,mediumlikelihoodriskwhilstafresh water shortagewasseentobe

relativelyhighimpact,lowlikelihoodrisk.



Figure 1. General public risk register (global)

Relative impact HighLow

Rel

ativ

e li

keli

hood

Hig

hLo

w

Obesity

Catastrophic weather event

Global warming

Over population

Income inequality

Energy crisis

Violent conflictCyber attack

Terrorist attack

Pandemic disease

Economic decline

Fresh water shortage

Asonewouldexpectthereweresomeinterestingdifferencesinperceptionsbetweenparticipantsfrom

differentcountries.Toillustratethiswelookatthedifferencesinsentimentbetweenrespondentsfrom

GreatBritainandIndiabelow.

GB results (public)GBrespondentsweremostconcernedabouttherisksofover population, energy crisis and income

inequality. Sustained economic declinewasalsonotedasarelativelyhighimpactriskthoughitwas

notthoughttobeaslikelytooccurasmanyoftheotherrisksconsidered.Mediumimpact,medium

likelihoodrisksincludedterrorist attack, global warming and violent conflictwhilstcyber attack and

pandemic diseasewereperceivedtoberelativelylowlikelihood,lowimpactevents.Interestingly,

catastrophic weather eventswerealsoseentoberelativelylowlikelihood/lowimpact.Itshouldbe

notedthatthesurveywasconductedbeforetheUK’sfloodingepisodesin2012sothismayexplainthe

relativelylowrankingofthisrisk.Aswiththeglobalsample,obesityisseenasveryhighlikelihoodbut

relativelylowimpact.



Figure 2. GB risk register (public)

Relative impact

Rel

ativ

e li

keli

hood

Obesity


Global warming

Over population

Income inequality

Energy crisis

Violent conflict

Cyber attack

Terrorist attack

Pandemic disease

Economic decline

Severe water shortage

Hig

hLo

w

HighLow

India results (public)SimilartotheresultsoftheGBsurvey,overpopulation and income inequalitywereperceivedasthetop

rankingrisksaccordingtoIndianrespondents.Thethreatofamajor terrorist attackwasalsoseenas

asignificantriskintermsofimpact,thoughanumberofotherriskswereperceivedtobemorelikely.

Environmental/energyrisksincludingglobal warming, fresh water shortages and energy criseswere

allseenasmediumtohighlevelriskswith global warmingrankedasthesecondmostlikelyriskofall.

Interestingly,cyber attackwasrankedrelativelyhighbycomparisontotheGBandGlobalriskregisters

outlinedabove.Acyber attackwasbelievedtobefarmorelikelytooccurthansustained economic

declinewhilstbothwereperceivedtohaveasimilarimpact.Episodesofviolent conflict, catastrophic

weather events and pandemic diseasewereperceivedtobetherisksofleastconcern–allrankedas

relativelylowimpact,lowlikelihoodevents.

Figure 3. India risk register (public)

Relative impact

Rel

ativ

e li

keli

hood

Obesity


Global warming

Over population

Income inequality

Energy crisis

Violent conflict

Cyber attack Terrorist attack

Pandemic disease Economic decline


Hig

hLo

w

HighLow


Reflecting on the public opinion pollTheriskregistersimplythat,onthebasisofamixtureofdevelopedanddevelopingworldcountries,

weshouldbetakingrobustactiononoverpopulationandincomeinequalitywhilstweshouldspend

relativelylimitedtimeandresourcesintryingtomitigatetherisksofacyberattackorpandemic

humandisease.

Importantlythough,differentcountriesseethesamesetofrisksdifferentlyandoursurveyevidence

suggeststhat,forexample,Indiashouldalsobeseekingtoprioritiseeffortstoaddressenvironmental

riskslikeclimatechange,freshwatershortagesandcrisesoverthesupplyofenergy.Ontheotherhand,

GBshouldbefocusingontacklingterrorismandeconomicdecline.

Thecrucialquestionthatstemsfromthisanalysisiswhethertheriskperceptionsofthegeneral

publicareappropriate.Wouldgovernmentsandpolicymakersbecorrect,forexample,toprioritise

overpopulation?ShouldGBbespendingmoretimeandresourceslookingintocyberrisksasdistinct

fromseekingtoaddressterrorism?Thesequestionsareimpossibletoanswerwithoutacrystalball

–somethingthat,regretfully,wasnotavailableatthetimeofwriting.Butonewouldassumethatthe

closerpublicopinionistothatofriskspecialists,thegreaterthelikelihoodofthegeneralpublictaking

thecorrectdecisionsonwhichriskstoprioritise.Thiswouldinturn,provideapowerfulincentivefor

governmentsandpolicymakerstotakeappropriateaction.

Contrasting public opinion with that of risk specialists

Inthefollowingsectionweoutlinekeyfindingsfromoursecondmajorglobalsurvey–thisoneassesses

theviewsofmembersoftheinsurancesector.Inreportingresults,wecontrastsomeofthefindingsfrom

thesurveyofCIIGBmemberswiththeIpsosMORIpublicopinionpollresultsfromthesamecountry.It

mustbenotedthatreporteddifferencesinsentimentbetweenthetwosetsofrespondentsshouldbe

treatedwithcaution.Thetwosurveyswereundertakenduringdifferenttimeperiodsandusingdifferent

samplingmethods.Inaddition,someoftherisksincludedwithinthemembersurveyappearslightly

differentlytotheIpsosMORIsurveymakingdirectcomparisonssomewhatspurious.Therefore,rather

thantreatingthesedifferencesas“real”,itisbettertousetheanalysistopromptfurtherthinking

ontheroleoftheinsuranceindustryinmakingsenseofrisk,andinformingthegeneralpublic’sown

riskperceptions.Thisisatopicthatwewillcomebacktoduringtherecommendationschapterlater

inthisreport.

CII member survey into risk perceptions of the insurance profession

About the survey

Inordertounderstandtheviewsofriskexperts,weconductedasurveyofCIImembers.4,367members

completedourquestionnaireacrosssixregions:GB(3,360),Asiadeveloped(215),Europe(145),

TheAmericas(101),Africa(231)andAsiaDeveloping(233).11FieldworktookplaceinMarch2012.

ExcludingGreatBritain,resultsweregroupedbyregionratherthancountry,giventhesmallnumberof

respondentsoutsideoftheUK.Indeed,evenafteraccountingforthischange,theoverwhelmingmajority

ofrespondentswasGBbased(77%).

11 AsiaDeveloped”includedcountriessuchasAustraliaandNewZealandwhilst“AsiaDeveloping”includedIndiaandChinaamongstothers.



ThesurveywasadministeredonlinethroughanemailsentouttoCIImembers.Thismethodof

distribution,coupledwiththelowsamplesizesachievedforsomeoftheregions,meansthatthere

islikelytobearelativelylargemarginoferrorforthenon-GBmemberresults.Asaresultofthese

technicaldifficulties,wejustreportriskregistersforGBandnon-GBmembers(samplesizeofthelatter

was1,007)below.Resultsarenotweighted.

The questionnaire

Consistentwiththeapproachtakenforthepublicopinionpollreportedabove,CIImemberswereasked

toranktherelativeimpactandlikelihoodofanumberofrisksoccurring.Therisksincluded:

• Majorterroristattack

• Geopoliticalconflict12

• Growingincomegapbetweenrichandpoor

• Sustainedeconomicgrowth

• Sustainedeconomicdecline

• Majorworldwideoutbreakofadisease,suchaspandemicflu

• Bigincreaseinthenumberofpeoplewhoareoverweight

• Significantincreaseinlifeexpectancy13

• Majorworldwideenergycrisis

• Substantialglobalwarming14

• Increaseincatastrophicweatherevents

• Severefreshwatershortage

• Majorcyberattacksongovernmentandbusinesses’computersystems

GB risk register (member)GBbasedCIImembersperceivedincome inequality, overpopulation and major terrorist attackas

relativelyhighimpact,highlikelihoodrisks.Sustained economic declinewasseenashavingthehighest

impactofall,thoughmembersratedthechancesofitoccurringaslesslikelythananumberoftheother

risks.Thisisbroadlyconsistentwiththepublicopinionpolldiscussedabove,thoughCIImembersmay

perceivetheriskofterroristattackassomewhatmoresevere.

Similartothepublicopinionpollfindings,CIIGBmembersperceivedthatanenergy crisiswouldhavea

relativelystrongimpact,thoughtherewereanumberofotherrisksthatCIImembersthoughtweremore

likely,includingsignificant increase in life expectancy(mediumimpact,mediumlikelihood)andobesity

(lowimpact,highlikelihood).Interestingly,cyber attackwasseenbyCIIGBmembersasarelatively

mediumimpact,mediumlikelihoodrisk.Thiscontrastswithresultsfromoursurveyofthegeneralpublic

whichplacedcyber riskbottomintermsofrelativeimpactandrelativelylowdownthepeckingorderin

termsoflikelihoodtoo.

Consistentwiththepublicopinionpoll,catastrophic weather event and pandemicwerebothranked

asrelativelylowlikelihood,lowimpacteventsbyCIIGBmembers.Againthismaybeaconsequenceof

thetimingofwhenthesurveytookplace–beforesomeofthemostseverefloodingepisodesin2012.It

mightalsobeaconsequenceofhowmembershaveinterpretedtheterm“catastrophic”–arguably,freak

weathereventslikeseverehurricanes,forexample,areprettyunlikelyinGB.Asmightbeexpected,

fresh water shortageswereperceivedasrelativelyhighimpactbutamongstthemostunlikelyofevents.

12 Wechangedtheterminologyfrom“violentconflict”to“geopoliticalconflict”.Wethoughttheformerwastoovaguesoamendeditintimeforthemembersurvey

13 Wedecidedtotestmemberviewsabouttheimpactofincreasinglifeexpectancywhichwasnotincludedwithinourpollofthegeneralpublic

14 Unfortunately,whilstthesurveyaskedmembersabouttherelativeimpactofclimatechange,memberswerenotaskedaboutthelikelihoodofclimatechange.Thismeansclimatechangewasomittedfromtheoverallriskregistersthoughrelativeimpactscoreswerestillobtained



Figure 4. GB risk register (member)

Relative impact

Rel

ativ

e li

keli

hood

Obesity


Rising life expectancy

Over population

Income inequality

Energy crisis

Geopolitical conflict

Cyber attack

Terrorist attack

Pandemic flu

Economic decline


Hig

hLo

w

HighLow

Non-GB risk register (member)BycomparisontoGBmemberswhorankedover populationasoneofthebiggestrisksfacingtheir

country,non-GBmembersperceivedthisasamediumimpact,mediumlikelihoodrisk.Fornon-GB

members,income inequalitywasseenasthegreatestriskfollowedbyanenergy crisis.

Acatastrophic weather eventwasperceivedasarelativelymediumimpact,mediumlikelihoodeventby

non-GBmembers.ThiscontrastswithGBmemberswhorankedthisrelativelylowdownthelistofrisks.

Obesityfollowedbycyber attackwerethelowestrankedrisksfornon-GBmembers.Thelatterresult

contrastswithGBrespondentswhoranked cyber attack asarelativelymediumlikelihood,medium

impactevent.Interestingly,rising life expectancywasperceivedtobeofgreaterrelativelikelihood

fornon-GBrespondentsthanGBrespondents,thoughbothgroupsperceivedthistoberelativelylow

impactcomparedtoanumberoftheotherrisksconsidered.UnlikeGBmemberswhoplacedtheriskof

aterrorist attackinthetopthreerisks,non-GBmembersrankthisriskasarelativelylowlikelihood,low

tomediumimpactevent.Geopolitical conflictwasseenashavingthesecondbiggestimpactafterrising

income inequality,whichcontrastswithrespondentsfromGBwhorankedthisaslowimpact.However,

bothGBandnon-GBmemberssawthechancesofgeopoliticalconflictaslow.



Figure 5. Non-GB risk register (member)

Relative impact

Rel

ativ

e li

keli

hood

Obesity


Rising life expectancy

Over population

Income inequality

Energy crisis

Geopolitical conflict

Cyber attack

Terrorist attack

Pandemic flu

Economic decline


Hig

hLo

w

HighLow

Summary of survey results• Understandingtherelativeimpactandlikelihoodofvariousrisksiscrucialtoensuringthatweare

abletoappropriatelyprioritisecertainrisksoverothers.

• Governmentsandpolicymakersaredrivenbyhowthegeneralpublicperceivesdifferentrisks,but

publicriskperceptionsmaynotalwaysbewellinformed.

• TheIpsosMORIpublicopinionpollimpliesthatpolicymakersshouldbefocusingonmitigatingthe

risksassociatedwithoverpopulationandincomeinequalityandgiverelativelylimitedpriorityto

preventingcybercrimeandpandemics.

• SimilartotheIpsosMORIpoll,theCIImembersurveyintotheviewsofriskspecialistsalsosuggests

thatpolicymakersshouldprioritiseincomeinequalityandoverpopulation.

• However,withrespecttotherisksfacingGreatBritain–CIImembersperceiveterrorismandcyber

attackasrelativelyhighimpact,highlikelihoodeventshintingatadiscrepancybetweentheviewsof

riskspecialistsandthegeneralpublic.

• Thesefindingshelptounderlinethefactthatriskspecialistswillcontinuetoplayakeyrolein

promotinggreaterawarenessofthevariousrisksthatweface–helpingtoinformpublicopinion

alongtheway.



Key recommendations

The story so far...Thisreportbeganbyoutlininghowmanyofthechallengesandrisksdiscussedoverthecourseof

theFutureRiskseriesmightbeaddressedovertheyearsahead.Tomeetthisaim,wesetoutavivid

newsarticlefromtheperspectiveof2030.Thearticleillustratedhowtheinsuranceindustrycouldbe

animportantfactorindrivingabetterworld–helpingtofostereconomicgrowth,mitigatingtherisks

ofanageingpopulation,ensuringsoundadaptationtoclimatechangeandprovidingnecessaryrisk

managementaroundthedevelopmentanduseofnewtechnology.

Wequalifiedeachofthesepointsbynotingthattheindustrywillnotbeabletosolvetheseproblems

onitsown–governmentaction,forexample,willbeoneofthemostpivotalfactorsindetermining

theworld’sfuturedirection.Ahealthyinsuranceindustryis,therefore,anecessarybutnotsufficient

condition–anditsfuturesuccesswillbelinkedtoitsabilitytoleverageitsuniqueexpertiseinrealms

thathavetraditionallysatbeyondthesector.

Thereportfollowedthisanalysisbyturningitsattentiontotheviewsofthegeneralpublicaswellasthe

insuranceindustryregardingmanyoftherisksconsideredoverthecourseoftheFutureRiskseries.The

surveyresultsindicatedthatover population and income inequalitywereperceivedtobethegreatest

futurerisksformanyofourrespondents,thoughthereweresomedifferencesbetweenGBandIndian

respondentswithrespecttotheirviewsonenvironmental, political and technological risks.Theremay

alsobedifferencesinriskperceptionsbetweentheviewsofinsurersandthegeneralpublic,though

moreworkisneededtoidentifytheextenttowhichthisisthecaseandtouncoversomeofthereasons

forit.Weconcludedthechapterbynotingthatinsurershaveanimportantroletoplayinfosteringa

moreinformedgeneralpublic.

The Future Risk manifestoBuildingontheworkinpreviouschapters,aswellasinsightsfromacrosstheseries,thispenultimate

chaptersetsoutsomehighlevelrecommendationsfortheindustry.Wehavelabelledoursetof

recommendationsa“manifesto”,becauseinmanywaysitisa“calltoarms”focusingontwospecific

areas:1)howtheindustrycanfaceuptosomeofthechallengesposedbyadynamicandevolving

externalenvironment,and2)howtheindustrycancontinuetodemonstrateitsrelevancetothesocieties

itserves.Theseaimsare,tosomeextent,mutuallyreinforcing,butthetypesofactionsandstrategies

necessarytoachievethemmaydiffer.

1. The profession

Beingpartofaprofessionwillbeincreasinglyimportantasrisksbecomemorecomplicatedandglobal

innature.Asthisreporthasshown,specificriskscannotsimplybetreatedinisolationfromoneanother.

Withrespecttoclimatechange,forexample,inthedevelopingworld,anincreasedpropensityfor

extremeweathereventsislikelytoexacerbatemanyotherriskfactorslikepoverty,diseaseandhunger.

Therefore,inunderstandingthepotentialfor,andimpactof,differentrisksoccurring,insurersmustbe

abletothinkabouthoweachoftheriskswillinteractwithoneanotheraswellasconsideringwhether

thereareanyotherrelevantfactorsthathavenotbeentakenintoaccount.

key recomm

endations


Inshortthen,insurerswillneedtobeincreasinglyhighlyskilledandregularlyreassesswherethegaps

intheirknowledgelieinordertoadapttoacomplexchangingexternalenvironment.Acommitmentto

professionalismwillbeavitalpartofthisprocess.Withinaprofession,practitionersandfirmscommitto

lifelonglearningandahighstandardofethicalbehaviour,bothofwhichhelptoengendergreaterlevels

oftrust.Notonly,therefore,aremembersofaprofessionlikelytobemorequalifiedtomakeinformed

judgmentsaboutdifferentrisksandtheirpotentialimpacts,buttheywillalsoreceivegreaterconfidence

fromthosetheyseektoserve,asaconsequenceofhavinghadtheirlearningandbehaviourproperly

verified.Beingpartofaprofessionis,therefore,crucialinordertobothmeetthechallengesofthe

21stcentury,andtodemonstratetherelevanceoftheindustrytoitscustomerbase.

2. Innovation

Theinsuranceindustryhasalwaysbeeninnovative–findingwaysandmeanstounderwriteallsorts

ofdifferenttypesofrisk,howeverbigorsmall.Continuinginnovationwillbecriticaltothesuccessof

theindustrygoingforwardstoo.Findinginnovativewaystoutilisenewtechnologywillbepartofthis

effort–helpingtoimprovetheefficiencyandeffectivenessofinsurers’corefunctions.Forexample,as

theUniversitiesandScienceMinister,DavidWillettsMP,wroteinourFutureRisktechnologyreport,

“throughamarketmatchalgorithm,insurancebrokerscanharnessnewtechnologytodeliveramodern

versionoftheclassicbrokerfunction”.

However,innovationwillnotjustbeconfinedtotheuseandapplicationoftechnology.Insurers,in

collaborationwithfinancialservicesmarkets,aredevelopinginnovativewaystospreadlargerisks,

likethechancesofacatastropheoccurring(i.e.throughcatastrophebonds)whichinturn,enablesthe

industrytocontinueprovidingcover.Futuredevelopmentscouldincludemoreofthistypeoffinancial

instrument.Indeedsomepartsoftheindustryarecurrentlyconsideringhowbesttofosteramarketfor

longevitybondstohelpspreadtheriskofrisinglifeexpectancy.15Inshortthen,continuinginnovation

willnotjustimprovetheabilityfortheindustrytostreamlineitscorebusinesspracticesthrough

technologicaladvance,butalsoenableittocontinueunderwritingsomeofthelargestandmostdiverse

risksfacingtoday’sandtomorrow’sworld.Theindustrymust,therefore,continuetoattractandemploy

someoftheworld’sbestandmostinnovativeminds.

3. Communication

Engaging consumers on the wider role of insurance:Thisreport,aswellastheentirefutureriskseries

hasstronglyarguedthattheinsuranceindustryhasakeyroletoplayinshapingthefuture.Withits

uniquefocusonriskmanagement,insurersarewellplacedtoprovideguidanceandsolutionsaboutthe

mostcomplexhazardsweface.

Crucially,theindustrymustbeabletocommunicateitsbroaderroleandvalueinsimpletermstothe

generalpublic.Thisdoesnotjustmeanprovidingmoreinformationaboutthelatestproductsand

services,butfindingwaystoinformandeducateaboutthewiderroleoftheindustry,suchasitscapacity

tofostereconomicgrowth.Thiswillhelptoprovidethepublicwithagreaterappreciationoftheroleand

importanceofthesector.

Currently,thefinancialmechanismsthroughwhichbankssupporteconomicgrowtharewellknown.

Incontrasttothis,thebenefitsofinsurancetoeconomicactivityarenotparticularlywellunderstood

outsideoftheindustry.Withdebatesaroundwhatconstitutessociallyusefulfinancialservices

continuingapace16inthewakeofthefinancialcrisisandcontinuingeconomicturmoil,nowisareally

importantmomentfortheindustrytocommunicateitsbroadervaluetosociety.

15 Longevitybondsarewheretheselleroflongevityriskpaysapremiumtoinvestors,andinreturn,investorswouldassumetheriskoflosingsomeoralloftheirinvestmentiffutureimprovementsinlifeexpectancyarehigherthanatapre-agreedrate.SeeSwissRe(2012)“AMatureMarket;BuildingaCapitalMarketforLongevityRisk”

16 Asanexampleofrecentmediacoverageabouttheusefulnessofinsuranceread:FT(2012)“PraisetoInsurers:HurricaneSandyProvesInsuranceCanBeSociallyUseful”availabletoreadat:http://www.ft.com/cms/s/0/96a43b04-2a6d-11e2-a137-00144feabdc0.html#axzz2EaSvouMk[lastaccessed9December2012]

key recomm

endations


Influencing policymakers:Thedecisionsmadebygovernmentsandpolicymakersinrespondingtothe

threatsthatwefacewillbecriticaltodeterminingtheworld’sfuture.Crucially,inmanypolicyareas,

suchasadaptationtoclimatechange,theindustryhasuniqueexpertiseinunderstandingseemingly

opaquerisks,aidedbyaccesstothelatestandmostreliabledataandriskmodellingtechniques.Each

oftheseattributesshouldbeinvaluabletogovernments’developingpolicy.Theindustry,therefore,

hasanobligationtocontinuedeepeningitstieswiththepolicymakingcommunity–helpingtoinform

governmentactionwhereveritcan.Nootherfinancialservicesindustryisabletounderstandandprovide

adviceonsomanydifferenttypesofrisk.Itistimetoleveragetheindustry’sexpertiseevenfurther.

Building a well-informed general public:Ithaslongbeenknownthatpeoplearenotrationaleconomic

agents.Theirabilitytoanticipateandprioritiseriskswillbeshapedbythesocialcontextswithinwhich

theyoperateincluding,andperhapsmostimportantly,theirrecentexperiences.17Oneimplication

ofthisisthatariskthatsomeonemightrightlyprioritisetodaymaybecompletelythewrongoneto

focusontomorrow.Expertsinriskcanalsogetthiswrongofcourse,butonewouldexpectthatthose

activelyengagedinassessingrisk,andappropriatelyqualified,wouldbemorelikelytomaketheright

judgementcallsonamoreregularbasis.

Thesurveyresultsdiscussedinthelastchapterofthisreportimplythatriskspecialistsandmembers

ofthepublicmayindeedviewthesamesetofrisksdifferently.Theindustryclearlythen,hasaroleto

playinassessingrisksonbehalfofnonriskspecialists–asithasalwaysdone.Buttheindustrycango

evenfurther.Itmustalsoseektochangetheriskperceptionsofthepublicsothattheirviewsalignmore

closelywiththatofspecialists.Thiswouldimprovetheextenttowhichindividualsareabletomanage

therisksthattheyfaceoverthecourseoftheirlives.Inaddition,asthisreportandotherswithinthe

serieshaveargued,howthepublicperceivesriskwillalsodrivegovernmentactiontoo–soabetter

informedgeneralpublicislikelytoresultinbetterpolicymaking.

Theindustryhasalwaysprovidedsomeformsofinformationtoitscustomersaboutvariousrisks.One

ofthemostobviousexamplesofthisisadjustingthepriceofpremiumsthatpolicyholdersmustpay

(thoughtheextenttowhichcustomersunderstandwhythecostoftheirpremiumsmighthavechanged

isdebatable).Theindustrymustgofurther,workinginconjunctionwithotherstakeholdersincludingthe

media,schoolsanduniversitiestoprovidebettereducationandinformationaboutthekindsofrisksthat

willfacethepublicintomorrow’sworldandthesortsoftechniqueswecanalladopttomitigatethem.

Thisshouldnotjustberelatedtoeffortsseekingtoraisefinancialcapability,butshouldbepartofa

broaderapproachtopreparingindividualstofaceacomplex,globalfuture.

4. Risk management

Scenario planning:Theapproachtakenbythisseriesofreportsismostcloselyalliedtoscenario

planning.Theseriesbeganbyidentifyingsomeofthekeyriskdriversthroughrigorousdeskresearch

beforeinvitingexpertsfromamultitudeofdisciplinestoprovidetheirviews.Ithasculminatedinthe

constructionofvividscenariosshowinghowdifferentactionsonthepartofamultitudeofstakeholders

including,andespecially,theinsuranceindustry,mightleadtodifferentoutcomesforsocietyatlarge.

Thereportshavearguedthatscenarioplanningisanimportanttoolforassessingpossiblefutureswhen

thenumberofvariablesissolargethatitwouldbeimpossibletomakeanyaccuratepredictionsbased

onquantitativeanalysis.Insteaditismoreusefultosketchoutsomequalitativevisionsofthefutureto

stimulatedebate.

17 Foranexcellentintroductiontodecisiontheoryandbehaviouraleconomicsread:DanielKahneman(2011)“ThinkingFastandSlow”,ThePenguinGroup,PenguinBooksLtd,80Strand,LondonWC2RORL,England

key recomm

endations


Inacomplexworldthatisconstantlychanging,scenarioplanningisanimportantpartoftherisk

specialist’sarmoury.Asthisserieshasarguedonanumberofoccasions,toomuchrelianceonmodels

thatarenotabletocopewiththepossibilityandimplicationsofhighimpactoutliers(i.e.thecollapseof

theUSsubprimemortgagemarketin2007)canbedangerous–lullingusintoafalsesenseofsecurity.

Riskspecialistsmust,therefore,engageinqualitativehorizonscanningexercisesontopofundertaking

robustmodellingtobuildaholisticviewoftherisklandscape.Thisapproachshouldbebuttressedby

ahealthylevelofscepticismabouttheabilityofmodelstopredictoutcomesoverthelongterm,anda

keenwillingnesstoquestionunderlyingassumptionsdrivingthemodel’sfindings.

Collaborating with experts:Thisserieshasdemonstratedtheneedfortheindustrytocontinue

workingincollaborationwithexpertsinotherdisciplines.Forexample,inourFutureRiskreport

intodemographicchange,itwasarguedthatinordertoeffectivelymodellongevityriskandtobuild

plausiblescenariosaboutfuturemortality,itwouldbenecessarytoconsultwithotherrelevant

specialistsincluding;demographers,actuaries,medicalexperts,epidemiologists,pharmacologists

andmore.Similarly,inourFutureRiskreportontechnology,wearguedthatinorderfortheindustry

tounderwriterisksassociatedwithnewtechnologies,insurersmusttaketimetobuildandsustain

relationshipswithresearchcentresincludinguniversities.Insummary,inaworldwithmanyinterlinked

risks,amultidisciplinaryapproachisneeded.Theindustryisalreadybuildingnetworksinthisregard,

butthesemustcontinuetogrowasrisksbecomebroaderandmorecomplicatedintheyearstocome.

Reflecting on high level principles Thesehighlevelprinciplesareinnowayintendedtobeanexhaustivelist.Othermeasureswillalso

needtobetakentoensurethattheindustryisabletochartastablepathoverfuturedecades.Andnew

issuesanddebateswillinevitablycometotheforeastheworldandtheindustryitselfcontinuesto

evolve.Butthesehighlevelprinciplesshouldbeseenasakeypointofdeparture.Theextenttowhich

theindustryisabletogrowasaprofession,isabletoinnovateintheconsumerinterest,tocommunicate

withthepublicaswellaswithgovernmentandpolicymakers,andmakesenseofdiverseandcomplex

risksthrougharangeofstakeholders,willbekeytodeterminingthesector’sfuturerelevancetothe

societiesitserves.

key recomm

endations


ConclusionTheFutureRiskseriesbeganbyaskingabroadquestionabouttheroleoftheindustryintomorrow’s

world.Webeganinansweringthisquestionbyexaminingsomeofthenumerouschallengesthatwill

facetheworldandtheinsuranceindustryoverthedecadesahead.Perhapsinevitably,someofthe

argumentsandscenariosthathavebeendescribedduringthisseriesmaybecomedatedrelatively

quickly,whilstotherswillhaveexcludedsometrendsoreventsthatwillbecriticalindeterminingthe

directionofourfuture.Gazingintothefuturewillalwayshavethesekindsofhazards,butweshouldnot

bedeterred.Withouttakingpartintheprocess,wewouldstepintothefutureblindfolded–leavingus

hopelesslyunprepared.

Thebestapproach,asthisserieshassoughttoargue,istodevelopplausiblescenariosofwhatthe

futuremighthold,debatetheseintently,andplanfordifferenttypesoffuturesemerging.Theinsurance

industrycannotdothisalone.Itmustworkcollaborativelywithotherkeystakeholdersinordertobetter

understandtheopportunitiesandchallengesitfaces.

Thehopethen,isthatthisseriesisseenassomethingofacasestudyintohowfirmsandpractitioners

mightwanttothinkaboutplanningfortheirownfuture–intermsoftheapproachesandmethodology

used.Wealsohopethatithasprovidedmuchfoodforthoughtaboutthekindsoflong-termissues

relevanttothesectorandtheroleoftheindustryinaddressingthem.Notallofthereportsand

scenarioswillberelevantforeveryone,butformany,thereshouldbeareasworthfurtherthoughtand

investigation.Andfinally,wehopethattheserieswillhelptoinformsocietymorewidely,anditsmany

stakeholders,ofthecontinuingimportanceoftheindustryinbearingtherisksofthefuture.

Theinsuranceindustry’spastshineswithcreativityandinnovationwhichhasallowedittocontinue

providingaservicethatiscentraltothefunctioningofahealthyeconomy.Itiscrucialthattheindustry

continuestoplaythisrole,forasthisserieshasrepeatedlyshown,asoundandstableinsurance

industry,hasakeyparttoplayinbuildingasecureandprosperousfutureforusall.

conclusion


Previous reports within the Future Risk series

Future risk: learning from historyThefirstreportwithinourcentenaryseriesreflectsonpasttrends

andtheirpotentialimplicationsforfutureriskaswellasdiscussing

someinitialfindingsfromaglobalsurveyintotheriskperceptions

ofmembersofthepublicfromacrosstheglobe.Itsetsoutthe

methodologyfortheentireseriesandidentifiesthemesforfurther

investigation.

Reportaccessiblevia:

www.cii.co.uk/future-risk-history

Future risk: social and economic challenges for tomorrow Thesecondreportinthecentenaryseriesfocusesonsomeofthebig

socioeconomicrisksidentifiedbythefirstreport.Utilisingexpertanalysis

fromGeorgeMagnusofUBSBankandDavidSmithofTheSundayTimes

amongstothers,weoutlinedthreepossiblesocioeconomicscenariosand

theirpotentialimplicationsfortheinsuranceindustry.Wethendiscussed

howtheindustrycanplayakeyroleindeterminingabetterfuture.


www.cii.co.uk/future-risk-economy

Future risk: Climate change and energy securityThethirdreportinthecentenaryseriesfocusesonclimate

changeandenergysecurity.Worldleadingexpertsincludingthe

Government’sChiefScientificAdviser,ProfessorSirJohnBeddington,

andtheInternationalEnergyAgency’sChiefEconomist,DrFatih

Biroloutlinewhatthefuturemighthold.Againweusetheexpert

analysisasthebasisfortheconstructionofthreescenariosandtheir

implicationsfortheinsurancesector.


www.cii.co.uk/future_risk_climate_change

1912

1914

1939

19451918

19601950 20001960

1970

19801929 20101990

End of first age of

globalisation

WWI started

WWII started

WWII ended

WWI ended

Marked increase in civil wars

Average life expectancy 41

Average life expectancy 67

World population around 3 billion

Worldwide average 4.5 children per

woman

Start of Iran-Iraq warMt St. Helens erupts

Black Thursday stock market crash

World wide

average 2.5

children per

woman

2011

World population of 7 billion

?Rise in international peacekeeping

2005

Half of Sub-Saharan

Africa live on less than $1.25 a day

20522012

Future risk Learning from history

Future risk Learning from history Centenary Future R


Ref: CII_futureriskLFH (02/12)CII_6420




CII_6420 100 Years - Key Trends Cover ARTWORK V1.indd 1 06/02/2012 13:34

Future risk Social and economic challenges for tom

orrow Centenary Future R




Ref: CII_socioeconomicLFH (03/12)CII_6414

Future risk Social and economic challenges for tomorrowCentenary Future Risk Series: Report 2

CII_6414 Socioeconomic Report Cover V3.indd 1 02/04/2012 15:16

Future risk Climate change and energy security – global challenges and im

plications Centenary Future Risk Series: R

eport 3



Ref: CII_environmentLFH (06/12)C12J_7194

Future risk Climate change and energy security – global challenges and implicationsCentenary Future Risk Series: Report 3

C12J_7194 Environment Report Cover V4.indd 1 14/06/2012 11:23

previous reports


previous reportsFuture risk: How technology could make or break our worldThefourthreportinourcentenaryserieslooksatrisksrelatedto

technology.Amongstotherrisks,itconsiderstechnological“black

swans”–lowlikelihood,highimpacteventssuchasthefailureof

largescaleITsystemscontrollinggridnetworks.Thereportalso

discussestheimportanceofcontinuingtechnologicalinnovationand

howtheinsuranceindustrycansupportthis.


www.cii.co.uk/future-risk-technology

Future risk: Defusing the demographic timebombThefifthreportinourcentenaryserieslooksatrisksrelated

todemographicchangeandinparticularglobalageing.Six

distinguishedauthorsdiscusswhatincreasinglongevityandfalling

fertilitymightmeanforeconomicactivity,governmentspending

andtheinsuranceindustry.Againweprovidethreeforwardlooking

scenariosbasedontheexpertanalysis.


www.cii.co.uk/future-risk-demographics

Future riskHow technology could make or break our world

Future risk How

technology could make or break our w

orld Centenary Future Risk Series: R

eport 4




Ref: CII_technologyLFH (08/12)C12J_7412

C12J_7412 Technology Report Cover V2.indd 1 14/08/2012 17:30

Future risk Defusing the dem

ographic timebom

b Centenary Future Risk Series: R

eport 5



Ref: CII_demographicsLFH (11/12)C12J_7584

Future risk Defusing the demographic timebomb


C12J_7584 Demographic Report Cover V3.indd 1 07/11/2012 17:35


CIILaurence Baxter

HeadofPolicyandResearch

CharteredInsuranceInstitute

20Aldermanbury

London

EC2V7HY

Email:

[email protected]

About the Chartered Insurance Institute (CII)

Professionalism in practice

TheCIIistheworld’sleadingprofessionalorganisationforinsuranceandfinancialservices,withover

105,000membersin150countries.

Wearecommittedtomaintainingthehigheststandardsoftechnicalexpertiseandethicalconductinthe

professionthroughresearch,educationandaccreditation.

OurCharterremitistoprotectthepublicbyguidingtheprofession.FormoreinformationontheCIIand

itspolicyandpublicaffairsfunction,includingexamplesoftherangeofissuesinfinancialservicesand

insurancethatwecover,pleasesee:

www.cii.co.uk/policy

Who to contact

About the Chartered Insurance Institute (CII)

Professionalism in practice

TheCIIistheworld’sleadingprofessionalorganisationforinsuranceandfinancialservices,withover

100,000membersin150countries.

Wearecommittedtomaintainingthehigheststandardsoftechnicalexpertiseandethicalconductinthe

professionthroughresearch,educationandaccreditation.

OurCharterremitistoprotectthepublicbyguidingtheprofession.FormoreinformationontheCIIand

itspolicyandpublicaffairsfunction,includingexamplesoftherangeofissuesinfinancialservicesand

insurancethatwecover,pleasesee:

www.cii.co.uk/policy

The Chartered Insurance Institute 42–48HighRoad,SouthWoodford,LondonE182JPtel:+44 (0)20 8989 8464email:[email protected]:www.cii.co.uk

©TheCharteredInsuranceInstitute2012Ref:CII_strongerworldLFH(12/12)C12J_7710

Documents

Future risk - Personal Finance Society...Chapter three reveals the results of two major opinion polls into risk perception. The first of these is an opinion poll conducted for the