Table 2: Selected Wiki survey responses Rank Risk description
Wins
Losses Score Source
19
Breakdown of capitalism: Distrust in the private capital/ property system causing a collapse in economic activity and asset prices
835
711
54.0
Seeded
24
Extreme longevity: Advances in medicine or genome science significantly increase life expectancy, overwhelming support systems
842
748
53.0
Seeded
32
Social contract erosion: Unwillingness of persons, legal systems and governments to abide by prior binding contracts (coverage limits and so on)
503
474
51.5
Usersubmitted
42
Nitrogen shock: Over-fertilisation leads to soil degradation and oxygen-starved freshwater lakes and oceans, fish populations collapse
265
428
38.3
Usersubmitted
Alien invasion: An invasion of non-peace-seeking aliens that seek either to remove the planet’s resources or enslave/ exterminate human life
205
57
increase in profitability. In short, many of these extreme risks have far reaching impacts for insurers.
Assessment framework However, a recurring problem with extreme risk planning is its subjectivity and its reliance on the experience and creativity of those involved. Impossible as it is to escape such limitations completely, a useful technique and framework is to define each extreme risk in three dimensions in order to help relate events to consequences – comprising the causal drivers, the precipitating events and
1317
13.5
Seeded
the ensuing effects. So, taking the example of anarchy (number 21 in the list with a 53.8 score), the following analysis in the table below might result. As for what insurers do with this information, the real issue is having a resilience plan in place. Extreme risk thinking
GRAHAM FULCHER
is managing director at Towers Watson
will never be an exact science, so actions could mean increasing the robustness of a business to deal with shocks, for example by using instruments such as contingent capital. Appropriate reinsurance is also critical, as a firm that can survive a one-in-200 year event will probably be very profitable in the aftermath. Equally important is realising that the kinds of risks that could wipe out an insurance business do inevitably evolve over time, and so should be kept under regular review. a
Table 3: Anarchy example Extreme risk Underlying causes
Precipitating events
Effects
Anarchy
Social disorder, rioting, looting, attacks on governmental institutions, loss of life
Government collapse, economic disruption and lay-offs, exit of foreign investment
Income inequality, perceptions of unfairness, dissatisfaction with government performance, populism, hyper-communications capabilities (social media, etc)
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