Making Risk Management Adaptive to a Faster, Taller, Bigger World: the Critical Power of Early Warning

No. 55 , February 2015 Making Risk Management Adaptive to a Faster, Taller, Bigger World: the Critical Power of Early Warning By Rolf Tanner+ Faster, taller, bigger: the world is moving at a quick pace, in all directions. Of today's 30 tallest buildings, only 10 were built before 2000. Five had been added by 2009. This makes 15 having been built between 2010 and today….And while the tallest skyscrapers nowadays soar 800 meters into the skies, plans are under way to go even higher with more than 1,000 meters —the Kingdom Tower in Saudi Arabia, to be completed by 2019. These are just examples of the constant cycle of record -setting and –busting we are experiencing, in all walks of life. Much of this correlates with the two engines of growth, the economic expansion of the emerging markets on the one hand, and the rapid progress we see in the fields of science and technology on the other hand: biology and genetics, IT, robotics and sensors, nanotechnology, artificial intelligence, among others. Growth seems no longer linear, but exponential. What does this mean for risk management? When the world is moving faster, we have less time to react to avoid ac cidents. And as the world is travelling further into spaces it has not been before, we must think about possible events and their effects which have not occurred yet —and may never occur. And so, in order to paraphrase Herman Kahn and his famous tagline of "thinking the unthinkable" (in his case, of global thermonuclear war), we need to "think the never thought before" when we are considering a new risk landscape deriving from the "faster, taller, bigger" spiral. Obviously, to measure tomorrow's exposures, w e can no longer simply extrapolate into the future from what we saw in the past. The Chief Risk Officer Forum (CRO Forum), which assembles the Chief Risk Officers of 25 insurance and reinsurance companies (mostly from Europe), has now come up with its newe st publication addressing exactly these issues. 1 It gives a high -level overview and seeks an industry consensus on what the issues are at stake and what needs to be done. Swiss Re entered the field of early risk detection in the late 1990s. It has built up a system to collect and process notions associated with risk (SONAR). 2 Input is provided both by internal and external sources: Swiss Re underwriters, risk and claims managers in the first case; a plethora of experts in the second case (scientists and university researchers, industry bodies, futurists, but also public organisations like the World Economic Forum (WEF) and its annual Global Risk Report 3). The findings are widely shared inte rnally and externally. Since 2013, Swiss Re has published its annual SONAR Scan bulletin.4 The bulletin deals with new risk themes, grouped according to their perceived potential impact on the (re)insurance industry. Obviously, dealing with emerging risks whose contours are by definition vague and opaque at the moment of detection is not —cannot be! —an exact science. Essentially, it is about the non -quantifiable or, more precisely, about the pre -quantifiable. Yet, while the benefits of new developments are o ften visible upfront, there normally is a time lag for the arrival of the first, unintended negative + Senior Risk Manager with Swiss Re's Emerging Risk Management team. 1 http://www.thecroforum.org/15722/ 2 http://www.swissre.com/rethinking/emerging_risk s/swiss_re_ahead_of_the_curve_in_charting_emerging_risk.html 3 http://www3.weforum.org/docs/WEF_GlobalRisks_Report_2014.pdf 4 http://www.swissre.com/rethinking/emerging_risks/Swiss_Res_SONAR_new_eme...