Banana Split Thinking…

Surveys of (re)insurance industry participants are a common method of assessing those issues which are of most concern at any point in time. One can compare them with the World Economic Forum’s (WEF) annual “Global Risk Report”.

One of the more long-established such series is the annual CSFI/PwC “Banana Skins”, in which (in the case of the recently published 2019 Reinsurance Survey) the views of some 320 executives who were polled on what they saw as the major risks facing the industry. Strangely enough, WTW then published its own much less frequent “Extreme Risks Report”, produced by its in-house “Thinking Ahead Institute”. Having one’s own “institute”, or access to one, is a growth industry…

A comparison of the respective “Top 5s” shows:

Banana Skins

Extreme Risks

1. Technology          

Global Temperature Change

2. Cyber Risk  

Global Trade Collapse

3. Climate Change    

Cyber Warfare

4. Change Management  

Resource Scarcity

5. Regulation 

Currency Crisis

The “fear remit” of the Banana Skins is clearly more inward looking and industry-focused than that of Extreme Risks, with the former being based on a survey and the latter on a more formal internal research methodology.

Of course, as with the WEF’s own offering, anyone reading them is likely to conclude that they are statements of the obvious, hardly containing any new information; representing, as they do, the current perceptions of a group, or number of supposedly expert individuals. They are not “forecasts”, nor are they “impact-weighted”, and they both suffer from the problem of familiarity threatening to breed contempt: none of the risks ranked at any level in either publication is, as we mentioned” exactly new, so “risk fatigue” is a concern.

The real question to be posed is: “Will any of this make a difference to the actions of any management team within the (re)insurance industry?” Frankly, we very much doubt it, because any executive who was not aware of and familiar with any of the risks articulated would not be performing at an acceptable level and should probably be cashiered.

It is, therefore, debatable whether such publications serve much purpose beyond telegraphing what the conventional thinking is. In providing a common taxonomy of perceived risks they also raise the issue of “framing” in the sense that, if the conventional thinkers and industry members are focused on what is published, perhaps that limits their exploration of risks not articulated? After all, the rankings are meant to convey a level of concern, so diverting attention from what is not there. Of course, many companies do have “Emerging Risks” as a remit for their ERM or Risk Management functions, although we wonder how much traction their findings get if they are (paradoxically) seen as “outside the mainstream”.

At Awbury, we do, naturally, make sure we are aware of what others are thinking, because we do not function in a vacuum, and the existence of such publications is useful in terms of understanding why others may behave in a certain way. However, we prefer to go our own way when it comes to risk identification, assessment, and ranking; and we worry about succumbing to risk orthodoxy, not out of any sense of superiority, but because it is the risks that you do not see and so do not address or prepare for that have a tendency to cause ruin.

A Publication of the Awbury Institute…

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