Of the various groupings of emerging risks on the radar at the moment there can be no doubt that top spot goes to systemic risk, which holds such an unenviable privileged position as a result of the ravages wrought by COVID-19.
Yet, as we heard this week from Lloyd’s CEO John Neal – speaking as part of a systemic risk masterclass series kindly hosted by the Chartered Insurance Institute, in partnership with Lloyd’s and the Lloyd’s Market Association – systemic risks are hardly limited to pandemics.
Neal mentioned animal viruses, electrical failure and widespread cyber-attack as other types of systemic risk, but the potential list is worryingly large and encompasses a range of financial risks as well, including off-balance sheet transactions and financial guarantee, as the (re)insurance and banking markets know only too well.
Perhaps unsurprisingly, participants in the masterclass were keen to laud the insurance market’s expertise on the subject, suggesting that brokers and underwriters in the specialty sector are ideally placed to model and engage with the topic.
I’m not going to argue with that, for I think that the intellectual capabilities of the industry are often overlooked, and we should do what we can to emphasise the technical understanding of the market when it comes to risk – an understanding which is as alive on the floor of Lloyd’s as it is in the ivory towers of academia.
Speaking of universities, also part of the event was Paula Jarzabkowski, professor of strategic management at Cass Business School, who suggested that by its nature, systemic risk is not insurable, “but that doesn’t mean elements of systemic risk cannot be insured”.
She pointed out that the insurance industry has an enormous indirect effect here, especially when it comes to its modelling expertise.
Jarzabkowski added that the “fundamental survival” of the insurance industry is dependent on its resilience to risk, calling for a greater dialogue around risk mitigation and suggesting that insurers “can and should” share models and data.
Well, I don’t want to rain on her parade but I’ve heard this sort of clarion call too many times to get excited. Sadly, the insurance market still operates in commercial silos, where risk data is guarded with a vengeance.
And why should it be otherwise? Brokers, underwriters and risk modellers invest considerable time and money in compiling this data.
Yes, they do. But surely there are some risks which by their very nature are so severe that a degree of market-wide, and indeed public-private, cooperation would be in the greater interests of all? Would it really hurt to pool data on some systemic risks in a meaningful fashion in future? Worth discussing, at least.
Enjoy the read,