© Lloyd’s 1 © Lloyd’s 1 Emerging Risks Nick Beecroft Manager, Emerging Risks & Research.

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Presentation transcript:

© Lloyd’s 1 © Lloyd’s 1 Emerging Risks Nick Beecroft Manager, Emerging Risks & Research

© Lloyd’s 2 2 Scope ► What is an emerging risk? ► Quantification: ‘plausible but extreme’ ► Assessment: connected risk in a globalised world ► Case studies: – Cyber attack on the US power grid – Food system shock ► Emerging risk research projects: – Space weather – Autonomous technology and the ‘digital revolution’

© Lloyd’s 3 What is an ‘Emerging Risk’? ► Lloyd’s defines an emerging risk as: an issue that is perceived to be potentially significant but which may not be fully understood or allowed for in insurance terms and conditions, pricing, reserving or capital setting. ► In practical terms, the defining feature of an emerging risk is high uncertainty concerning the essential features of the risk (likelihood and impact) ► The aim of emerging risk management at Lloyd’s is to reduce uncertainty through research and scenario development. Research (thought leadership) Scenario development Exposure management Innovation

© Lloyd’s 4 Quantification: plausible but extreme ► Scenarios are a valuable tool to explore uncertainty and test assumptions ► For emerging risks, proxy data can be used to frame analysis ► Qualitative assessment is essential ► Beware behavioural bias! Lloyd’s Realistic Disaster Scenario 2-tonne bomb blast, Rockefeller Centre, New York City

© Lloyd’s 5 Enterprises driving the global economy Wal-Mart Shell BP ExxonMobil PetroChina Volkswagen Toyota Berkshire Hathaway Pfizer Johnson & Johnson RocheGlaxoSmithKline AT&T Apple Amazon Chevron Gazprom Sinopec GeneralMotors Allianz Oracle AXA Tesco Nestlé Auto Aerospace Energy ConsumerBiotechTechnology Financial Assessment: connected risk in a globalised world

© Lloyd’s 6 Cyber attack against the US power grid Duration and extent of power outage Insurance claims

© Lloyd’s 7 Food system shock Insurance impacts ► Terrorism and Political Violence ► Political Risk ► Business Interruption ► Marine and Aviation ► Agriculture ► Product Liability and Recall ► Environmental Liability Compounding factors ► Potential to span multiple years ► Impacts on investment income ► Impacts on regulatory and business environment

© Lloyd’s 8 © Lloyd’s 8 Emerging risks research

© Lloyd’s 9 Research: severe space weather Magnetogram recordings of the ‘Carrington event’ Recorded at the Greenwich Observatory, 1859 (source: British Geological Survey) Coronal mass ejection and the earth’s magnetic field (source: European Space Agency)

© Lloyd’s 10 Research: severe space weather ► Lloyd’s commissioned research on the risk to the North American electric grid which showed that an extreme geomagnetic storm is almost inevitable in the future, with a return period of 150 years ► A severe event could generate a power outage in North America of between 16 days and 2 years, affecting a population of million. ► Lloyd’s is now developing a model that will enable syndicates to estimate aggregate exposure to a severe space weather event Damage to high voltage transformer following geomagnetic storm

© Lloyd’s 11 Research: autonomous machines and the ‘digital revolution’ ► Big data combined with artificial intelligence ► Risk does not disappear – Decision-making by machines – Personal liability transformed in to product liability? ► Connected economy may be more vulnerable to system-wide disruption

© Lloyd’s 12 © Lloyd’s 12