- In a well managed system, the decision-maker will know how close to the wind he is sailing. He will know how big a chance change in wind speed needs to be to give him that extra reward, or risk toppling the ship.
- Appetite for risk plays an important part; the more chance you take, the bigger the potential reward, and the bigger the potential cost of emergency action.
It follows that the successful decision-maker will have a keen interest in the projection of revenue and outgo. Regulators and shareholders would expect expert, transparent and auditable systems, and experienced judgements to be in place.
For an overview of the expected approach and how there are particular problems with liability insurance see : Emerging risks management – overview
For liability insurance business, the plan begins with identifying the right definition of emerging liability risk:
projected liability exposure will probably exceed its anticipated level by more than its accepted tolerance
A slow change that is picked up in experience modelling is not really a problem unless it is overlooked. Many of the changes brought about by climate change and the ageing demographic for example, will be so slow that adaptation will happen in the natural course of events. But not all such changes will be slow.
Once a potential change has been identified e.g. retrospective liability for breast cancer, the probability and margin of an exceedance can be quantitatively evaluated using probabilistic methods. BUT its not all science and maths; experienced expert judgment is still needed to account for factors which cannot be modelled or for which there is no reliable data.
The starting point in liability risk management is always one of projecting forward from claims experience. This can be and should be done at whole account level, product level and sector level. Sometimes also at regional level. At each level, the projection and its acceptable exceedance can be defined, measured and monitored. Business can be planned. Performance measured. Changes made.
But new drivers for change cannot be accounted for simply by looking backwards over the accumulated data. For this you need methods that identify and evaluate all changes to exposure whether retrospective or prospective.
The Radar service provides independent expert advice on probable changes to liability exposure; providing quantitative factors and informing your expert judgment. As part of this effort it naturally identifies weaknesses in expert witness opinion, points out where a key point should be defended, and where a risk is not in fact as large as orthodoxy would have you believe. It has generated a new understanding of the concept of material contribution, a risk assessment tool for nanotechnology and identified many issues that could be included in renewal negotiations, site surveys and market penetration planning.
By exploring this web site the visitor will see examples of this work, how it was done and why it was done that way.