Risk and Opportunities embedded in
VUCA
Swiss Re SONAR 2016
Dr. Reto Schneider Risk Expert
Agenda
• VUCA???
• Need for early warning
• Black swans an more
• Swiss Re SONAR 2016 in a nutshell
• Where do we stand with Risk Management? Garden pictures from
2
VUCA Principle: Volatility, Uncertainty, Complexity,
Ambiguity
How do you deal with it??
Freeze
Flee
or Fight …..
anticipate and think in scenarios
Why early warning?
4
The 2016 edition of Swiss Re SONAR presents 21 new
emerging risk themes …
Swiss Re SONAR is not a forecast,
but an early warning system.
5
break complex systems into small pieces and hire a
specialist to assess it.
and you will loose oversight
6
VUCA
• Volatility
– leap frogging, sudden changes, yes but ….
• Uncertainty
– think in plausible scenarios, agree on assumptions, agree on, guiding principle can
be pragmatism, risk benefit, precautionary approach etc. ask the right questions
do not go for evidence only …
• Complexity
– non linearity, speed of change, interconnectivity, dependencies, feedback loops,
no long hanging fruits …. and KISS.
• Ambiguity
– multiple ways for interpretation, several options may win
Communication, constant reassessment > new, adjusted decision making
7
Global macro trends shape tomorrow’s risk landscape
Swiss Re’s Group Strategy & Development team has identified 24 global macro
trends likely to have a high impact over the next 5-10 years.
8
Where do we stand in Risk Management? Renaissance?
Renaissance Garden science can explain everything but must be
inline with “law and order” / Good , straight lines, symmetry
9
The search for black swan events? What is really different
 Earthquakes
 Volcanoes
& Tsunamis
and super volcanoes
 Floods
 Typhoons
 Droughts
 Pandemics
 Terrorism
events
 Systemic risk

financial crisis, prolonged power black out
 Cyber
 and
attacks
more?
Severity is the surprise element; Probabilty does not really
matter
Elucidation era: English garden design
no straight lines, strong believe in the power of humans, breaking rules
11
Emerging risk themes are grouped according to their
potential impact and time frame for manifestation
0-3 years
> 3 years
12
ZEN garden in Kyoto 15 stones but you cannot see all of
them …. change perspective
Change of perspective is required
13
The great monetary
experiment (cont.)

Quantitative easing continues,
resulting in a low to negative
interest rate environment

Economic growth and inflation
remains tepid in the Eurozone
and Japan, triggering
discussions about additional
monetary policy stimulus

The ultimate impact of proposed
measures is highly uncertain

Negative interest rates will
further undermine the
conventional business model of
the insurance industry,
particularly life insurers, and
pension funds
14
Internet fragmentation

Cyber-crime and cyberespionage have grown strongly
and make the internet less safe

Governments urge corporations
to protect their online assets
more effectively and
contemplate isolating critical IT
infrastructure from global
networks

While fragmentation is unlikely
to happen suddenly, disconnected national and regional
nets will become more common

Such developments would hurt
global corporations and
undermine growth plans
15
Blockchain risks

The blockchain is a distributed
ledger technology to certify
ownership and verify
transactions

It can revolutionise industries
where heavy documentation is
needed, incl. insurance

Large financial services players
are contemplating to use
blockchain approaches for
various applications

There are still some challenges:
 Cyber risk exposure
 Regulatory uncertainty
 Reputation issues (money
laundering etc.)
16
Distributed energy
production

Through a range of smaller-scale
and modular devices designed
to provide electricity in locations
close to consumers, millions of
households will develop from
consumers-only into energy
producers

Traditional radial power
distribution systems have to
transform into multi-source
systems  challenges for grid
stability and power availability at
peak hours

Smart solutions for energy
storage, transmission and
distribution will be key success
factors ( cyber risk exposure)
17
Gene drives

Genetic systems that
circumvent the rules of normal
sexual reproduction and
greatly increase the odds that
a particular trait will be
passed on to offspring,
allowing it to rapidly spread
across a population

Potential to fix difficult
biological problems, but still a
lot of uncertainties

Scientists call for increased
regulation, but international
governance is still lacking
18
Phoney data and data
tampering

The promise of Big Data and
digital analytics is better risk
assessment and more tailormade products and coverages

The resulting drive to generate
ever more data may lead to
inappropriate codification and
"datification" of various
phenomena, ultimately
producing phoney data

There may be incentives to
manipulate sensor data

Using manipulated or phoney
data sets for insurance may
result in mispricing risks and
unexpected claims
19
The future of work

Artificial intelligence and
robotics enable a “4th industrial
revolution” where automation
and M2M communication
dominate industrial production

This will increase productivity,
but will also make many current
jobs obsolete

Mass unemployment could
result in a shrinking customer
base for personal insurance and
a reduced portfolio for
employers’ liability

Insurance might find new
opportunities in supporting the
growth of a new informal
economy
20
Legal and pricing risks of the
sharing economy

Increasing sophistication of
sharing economy service
providers  personal lines or
commercial lines insurance?

Legal and regulatory
uncertainties may prevent
insurers from seizing the full
potential of the sharing
economy

Traditional insurers may face
pressure from new players
that can access new client
segments through a sharing
economy set-up
21
it is your imagination to show you how the garden looks
like
22
We use stories and pictures to discuss future worlds
Emerging trend spotlights highlight current developments which we
deem interesting to follow, although they have not yet manifested into
risks.
23
24