Our Scariest Analytics Risk – Science Threatened

Scariest Risks

Scariest Risks
It’s tempting to pick as the scariest analytics risk the regulatory confusion caused by continued delays in the Solvency II process in Europe. But I’m not.

Solvency II Delays Are a Risk…

Yes, many insurers have invested a fortune in staff and systems, but we have no idea yet of a start date or indeed exactly where the goalposts are. There is a real risk that companies will take their foot off the gas and risk missing some of the business advantages that could and should lead from adoption of the sound risk management principles behind Solvency II. One key principle is the concept of insurers developing their own view of risk, something I have been rabbiting on about for years, but whose time has now come.

Models, especially catastrophe models, need to be understood and challenged, not blindly used and accepted. Models inform, they do not decide. The computer shouldn’t say no (or yes), humans must call the shots. Firms should use the best scientific and business knowledge available to weigh all the evidence they have before deciding on the assumptions that underpin their decision making. Which makes it all the more concerning that scientific opinion is now coming under serious legal challenge.

But Challenges to Science Are a Greater Risk

In Italy recently, six leading scientists were convicted of manslaughter, given a sentence of six years in jail and ordered to pay compensation of €7.8m. They were accused of giving “incomplete, imprecise and contradictory” information on the dangers locals faced before the 2009 L’Aquila earthquake. The scientists, Italy’s leading experts, were unpaid advisors on the National Commission for the Forecast and Prevention of Major Risks. They now face a lengthy and expensive appeals process. Already other scientists are resigning from government committees in Italy.

But this is not just an Italian problem, the world is getting much more litigious. In the UK for example, libel laws have been used to attempt to silence scientists who express an opinion contrary to the powerful interests.

Science works best by a process of challenge and review. Model assumption development is exactly the same. If scientists and analysts are afraid to express an opinion and/or challenge the status quo, we get poor decision making and a society/industry exposed to systemic risk. This must not be allowed to happen.

This post was part of the special feature about Our Scariest Risks, published October 29, 2012. The feature also included these other risks:

About David Simmons

David is a Managing Director in the Willis Re Analytics team in London. He focuses on Enterprise Risk Management, i…
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