News - Lloyds
WHAT IF…? HOW REIMAGINING HISTORY COULD HELP INSURERS
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hat if a solar storm had history – setting out how a type of struck during the London lateral thinking, called counterfactual, Olympics in 2012? can be applied to complement What if the wind had blown how insurers analyse risk. radioactive contamination onshore when the Fukushima nuclear plant The report discusses how downward was struck by a counterfactual tsunami in 2011? analysis – in other By What if West Africa words considering adopting a had been embroiled how historical in civil war during near misses might counterfactual 2014’s Ebola crisis? have become perspective major disasters and exploring Major global events – can be carried like these could have out in practice. It how historical had even more serious acts as a starting events could impacts if things point for future have unfolded had happened just research into differently, a bit differently. counterfactual additional insight events and their The worst disaster in characteristics. can be gained aviation history was into rare extreme According to narrowly avoided in July, for example, when losses that might Lloyd’s, downward a passenger plane pilot otherwise come as counterfactual descending into San thinking brings a a surprise.” Francisco airport pulled range of benefits up at the last second. to insurers. Lloyd’s, together with modelling company RMS, have published a new report – entitled Counterfactual Disaster Risk Analysis: Reimagining
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Trevor Maynard, Head of Innovation at Lloyd’s, explained: “The fact that downward counterfactual events are anchored to actual historical
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experience helps facilitate complex explanation, deeper understanding and more coherent communication of future risks and modelling uncertainty to board members, policyholders, policymakers, risk managers and others.” Gordon Woo, Catastrophist at RMS, added: “Insurers will benefit from looking at the past as just one realisation of what might have happened. Whatever the past, risk insight is gained from exploring how things might have turned for the worse – the downward counterfactuals. By adopting a counterfactual perspective and exploring how historical events could have unfolded differently, additional insight can be gained into rare extreme losses that might otherwise come as a surprise.” In regards to risk modelling, Woo, explained: “Downward counterfactual risk analysis helps address the bias that can be inherent in some models that are based on the same historical data sets.
See Reimagining History Page 32
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