Post on 20-May-2020
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: customer.serv@cii.co.uk 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.
2 Future risk: insuring for a stronger world
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
3 Future risk: insuring for a stronger world
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
4 Future risk: insuring for a stronger world
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.
5 Future risk: insuring for a stronger world
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
6 Future risk: insuring for a stronger world
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”
approaches and methods
7 Future risk: insuring for a stronger world
Future risk mind map: some of the risks considered during the series
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approaches and methods
8 Future risk: insuring for a stronger world
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
9 Future risk: insuring for a stronger world
“ 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.
10 Future risk: insuring for a stronger world
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.
11 Future risk: insuring for a stronger world
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.
12 Future risk: insuring for a stronger world
“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
13 Future risk: insuring for a stronger world
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
14 Future risk: insuring for a stronger world
“ ...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”
15 Future risk: insuring for a stronger world
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]
16 Future risk: insuring for a stronger world
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.
17 Future risk: insuring for a stronger world
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
18 Future risk: insuring for a stronger world
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.
the importance of risk perception
19 Future risk: insuring for a stronger world
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.
the importance of risk perception
20 Future risk: insuring for a stronger world
Figure 2. GB risk register (public)
Relative impact
Rel
ativ
e li
keli
hood
Obesity
Catastrophic weather event
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
Catastrophic weather event
Global warming
Over population
Income inequality
Energy crisis
Violent conflict
Cyber attack Terrorist attack
Pandemic disease Economic decline
Fresh water shortage
Hig
hLo
w
HighLow
21 Future risk: insuring for a stronger world
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.
the importance of risk perception
22 Future risk: insuring for a stronger world
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
the importance of risk perception
23 Future risk: insuring for a stronger world
Figure 4. GB risk register (member)
Relative impact
Rel
ativ
e li
keli
hood
Obesity
Catastrophic weather event
Rising life expectancy
Over population
Income inequality
Energy crisis
Geopolitical conflict
Cyber attack
Terrorist attack
Pandemic flu
Economic decline
Fresh water shortage
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.
the importance of risk perception
24 Future risk: insuring for a stronger world
Figure 5. Non-GB risk register (member)
Relative impact
Rel
ativ
e li
keli
hood
Obesity
Catastrophic weather event
Rising life expectancy
Over population
Income inequality
Energy crisis
Geopolitical conflict
Cyber attack
Terrorist attack
Pandemic flu
Economic decline
Fresh water shortage
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.
the importance of risk perception
25 Future risk: insuring for a stronger world
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
26 Future risk: insuring for a stronger world
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
27 Future risk: insuring for a stronger world
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
28 Future risk: insuring for a stronger world
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
29 Future risk: insuring for a stronger world
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
30 Future risk: insuring for a stronger world
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.
Reportaccessiblevia:
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.
Reportaccessiblevia:
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
isk Series: Report 1
Ref: CII_futureriskLFH (02/12)CII_6420
The Chartered Insurance Institute 42–48 High Road, South Woodford, London E18 2JPtel: +44 (0)20 8989 8464 email: customer.serv@cii.co.uk website: www.cii.co.uk
© The Chartered Insurance Institute 2012A CENTURY OF PROFESSIONALISM
Centenary Future Risk Series: Report 1
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
isk Series: Report 2
The Chartered Insurance Institute 42–48 High Road, South Woodford, London E18 2JPtel: +44 (0)20 8989 8464 email: customer.serv@cii.co.uk website: www.cii.co.uk
© The Chartered Insurance Institute 2012A CENTURY OF PROFESSIONALISM
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
The Chartered Insurance Institute 42–48 High Road, South Woodford, London E18 2JPtel: +44 (0)20 8989 8464 email: customer.serv@cii.co.uk website: www.cii.co.uk
© The Chartered Insurance Institute 2012A CENTURY OF PROFESSIONALISM
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
31 Future risk: insuring for a stronger world
previous reportsFuture risk: How technology could make or break our worldThefourthreportinourcentenaryserieslooksatrisksrelatedto
technology.Amongstotherrisks,itconsiderstechnological“black
swans”–lowlikelihood,highimpacteventssuchasthefailureof
largescaleITsystemscontrollinggridnetworks.Thereportalso
discussestheimportanceofcontinuingtechnologicalinnovationand
howtheinsuranceindustrycansupportthis.
Reportaccessiblevia:
www.cii.co.uk/future-risk-technology
Future risk: Defusing the demographic timebombThefifthreportinourcentenaryserieslooksatrisksrelated
todemographicchangeandinparticularglobalageing.Six
distinguishedauthorsdiscusswhatincreasinglongevityandfalling
fertilitymightmeanforeconomicactivity,governmentspending
andtheinsuranceindustry.Againweprovidethreeforwardlooking
scenariosbasedontheexpertanalysis.
Reportaccessiblevia:
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
The Chartered Insurance Institute 42–48 High Road, South Woodford, London E18 2JPtel: +44 (0)20 8989 8464 email: customer.serv@cii.co.uk website: www.cii.co.uk
© The Chartered Insurance Institute 2012A CENTURY OF PROFESSIONALISM
Centenary Future Risk Series: Report 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
The Chartered Insurance Institute 42–48 High Road, South Woodford, London E18 2JPtel: +44 (0)20 8989 8464 email: customer.serv@cii.co.uk website: www.cii.co.uk
© The Chartered Insurance Institute 2012A CENTURY OF PROFESSIONALISM
Ref: CII_demographicsLFH (11/12)C12J_7584
Future risk Defusing the demographic timebomb
Centenary Future Risk Series: Report 5
C12J_7584 Demographic Report Cover V3.indd 1 07/11/2012 17:35
32 Future risk: insuring for a stronger world
CIILaurence Baxter
HeadofPolicyandResearch
CharteredInsuranceInstitute
20Aldermanbury
London
EC2V7HY
Email:
laurence.baxter@cii.co.uk
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:customer.serv@cii.co.ukwebsite:www.cii.co.uk
©TheCharteredInsuranceInstitute2012Ref:CII_strongerworldLFH(12/12)C12J_7710