The great benefit of blogging, if you set out to write something that you at least hope someone else is going to read, is that you are forced to think carefully about what it is you want to write about.
The biggest problem with blogging is that it forces you to think carefully about what it is you want to write about.
Thursday 30 December 2010
Tuesday 28 December 2010
Digital risk part 2 - the beautiful symmetry of uberrima fides...
This is the second post in a series I am writing about how digital risk is different to anything the insurance industry has previously dealt with. In this post, I discuss uberrima fides, the legal doctrine that governs all insurance contracts.
Monday 27 December 2010
Sunday 26 December 2010
Tuesday 21 December 2010
This is well worth half an hour
I just read this (from McKinsey) and expect to be thinking about it for some time.
Monday 20 December 2010
Will insurance ever offer more than risk transfer?
This is the first of a series of pieces I will try to post over the coming weeks on digital risk and its implications for the insurance industry.
1. Be afraid, be very afraid…
I have just finished reading a report from the Lloyd’s 360° Risk Insight team – Managing Digital Risk, trends, issues and implications for business. It was produced by Lloyd’s but written by a couple of guys at HP and if you want to know about ‘Managing Digital Risk, trends, issues and implications for business,’ it does exactly what it says on the tin.
Wednesday 15 December 2010
Apologies for quietness..
Been re-reading The Tipping Point - forgotten how interesting it was.
In the meantime, this is beautiful...
In the meantime, this is beautiful...
Monday 6 December 2010
A route to true social insurance?
In case you are wondering, social insurance as I am using the term, has nothing to do with taxpayer funded, government run insurance schemes...
The Sunday Times (5/12/10) has an article suggesting that "insurers use facebook to vet lifestyles". This isn't the biggest surprise I read over the weekend but the article was interesting in that it discussed how studies by Deloitte Consulting "suggest that people's online data detailing their food purchases, activities and social groups can be as good an indicator of their life expectancy as conventional medical examinations." (I would like to have put a link here but The Sunday Times hides behind a firewall.)
Reading that someone's social graph could provide what I will call an individual risk profile did surprise me however, because it links with some ideas I put together with a friend nearly nine years ago, in a paper we wrote to the Bank for International Settlements (BIS) on the implications of operational risk as defined by Basel II - new banking regulation then first being considered. Basel II defined operational risk as the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events.
In that report (click the link and download the EWB response), we didn't talk about social graphs but I think we might have been tempted to use the term 'corporate graph' if Mark Zucherberg had coined his term a bit earlier. We were thinking explicitly however, of individual risk profiles for banks conceived in terms of various kinds of agents (employees/customers/etc) interacting in multiple ways (deals/projects/etc) with all sorts of consequences, some intended, some not. We added consequences to the profile (our version of the graph) because risk for a buyer of insurance is most readily understood in terms of unintended consequences.
We felt such an individual/unique risk profile was essential in order to be able to understand and deal with operational risk for a number of reasons. For example, such a profile would allow the entity and its stakeholders (including its insurers) to understand the nature and scope of its operational risk. We also thought that it was the only way to capture the dynamism of operational risk; we felt this was critical because a snapshot of operational risk would be just about as helpful (i.e not much) as the information in a single annual report or proposal form and because we felt managing operational risk ought to be done in real time, to be effective. We also thought that, because Basel II was really only interested in the effects of operational losses and broadly uninterested in the causes, any insurance product that aimed to deliver capital mitigating properties had to mirror this approach. This also meant however, that operational risk could not be transferred in the traditional cause-based silos insurers normally use. This in turn meant that an alternative framework from which to model operational risk had to be developed, or it couldn't later be sliced and diced - essential to optimising capital.
What does this have to do with the Market Network and my interest in social computing and insurance?
Every buyer of insurance - whether individual or firm - has a portfolio of risks and, like the regulators who conceived the operational risk framework of Basel II, they are more likely to be worried that they might have a loss and its financial consequences than in what might cause the loss. But when they buy insurance, they have to deal in causes because insurers only sell insurance policies for particular causes - motor, fire or professional indemnity for example. This means there are inevitable gaps in coverage - to the extent that the coverage is available in the particular policies that fully addresses those risks in the first place.
It seems to me that the hope of 'social insurance' - if such a thing comes into being - will be the ability to transfer the customer's portfolio of risks as a portfolio - without the customer having to think about fitting the pieces of the insurance jig-saw together as is the case now, incomplete as the jig-saw is. For insurers to prudently accept such a portfolio however, bearing in mind that the basic principles of insurance must still apply, would require the kind of transparency that an individual risk profile based on a social or corporate graph might deliver.
While the concept is theoretically viable, there are clearly enormous practical issues to address - not least concerning privacy - but individuals have already demonstrated they are willing to share information on a scale that would have been inconceivable only a few years ago. And if the information individuals are already sharing is sufficient to achieve the kinds of aims Deloitte suggests are possible for insurers, transferring the benefit of the information capture to the customer before the insurer might be a benefit worth actively sharing the information for.
The Sunday Times (5/12/10) has an article suggesting that "insurers use facebook to vet lifestyles". This isn't the biggest surprise I read over the weekend but the article was interesting in that it discussed how studies by Deloitte Consulting "suggest that people's online data detailing their food purchases, activities and social groups can be as good an indicator of their life expectancy as conventional medical examinations." (I would like to have put a link here but The Sunday Times hides behind a firewall.)
Reading that someone's social graph could provide what I will call an individual risk profile did surprise me however, because it links with some ideas I put together with a friend nearly nine years ago, in a paper we wrote to the Bank for International Settlements (BIS) on the implications of operational risk as defined by Basel II - new banking regulation then first being considered. Basel II defined operational risk as the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events.
In that report (click the link and download the EWB response), we didn't talk about social graphs but I think we might have been tempted to use the term 'corporate graph' if Mark Zucherberg had coined his term a bit earlier. We were thinking explicitly however, of individual risk profiles for banks conceived in terms of various kinds of agents (employees/customers/etc) interacting in multiple ways (deals/projects/etc) with all sorts of consequences, some intended, some not. We added consequences to the profile (our version of the graph) because risk for a buyer of insurance is most readily understood in terms of unintended consequences.
We felt such an individual/unique risk profile was essential in order to be able to understand and deal with operational risk for a number of reasons. For example, such a profile would allow the entity and its stakeholders (including its insurers) to understand the nature and scope of its operational risk. We also thought that it was the only way to capture the dynamism of operational risk; we felt this was critical because a snapshot of operational risk would be just about as helpful (i.e not much) as the information in a single annual report or proposal form and because we felt managing operational risk ought to be done in real time, to be effective. We also thought that, because Basel II was really only interested in the effects of operational losses and broadly uninterested in the causes, any insurance product that aimed to deliver capital mitigating properties had to mirror this approach. This also meant however, that operational risk could not be transferred in the traditional cause-based silos insurers normally use. This in turn meant that an alternative framework from which to model operational risk had to be developed, or it couldn't later be sliced and diced - essential to optimising capital.
What does this have to do with the Market Network and my interest in social computing and insurance?
Every buyer of insurance - whether individual or firm - has a portfolio of risks and, like the regulators who conceived the operational risk framework of Basel II, they are more likely to be worried that they might have a loss and its financial consequences than in what might cause the loss. But when they buy insurance, they have to deal in causes because insurers only sell insurance policies for particular causes - motor, fire or professional indemnity for example. This means there are inevitable gaps in coverage - to the extent that the coverage is available in the particular policies that fully addresses those risks in the first place.
It seems to me that the hope of 'social insurance' - if such a thing comes into being - will be the ability to transfer the customer's portfolio of risks as a portfolio - without the customer having to think about fitting the pieces of the insurance jig-saw together as is the case now, incomplete as the jig-saw is. For insurers to prudently accept such a portfolio however, bearing in mind that the basic principles of insurance must still apply, would require the kind of transparency that an individual risk profile based on a social or corporate graph might deliver.
While the concept is theoretically viable, there are clearly enormous practical issues to address - not least concerning privacy - but individuals have already demonstrated they are willing to share information on a scale that would have been inconceivable only a few years ago. And if the information individuals are already sharing is sufficient to achieve the kinds of aims Deloitte suggests are possible for insurers, transferring the benefit of the information capture to the customer before the insurer might be a benefit worth actively sharing the information for.
Friday 3 December 2010
This won't help corporate transparency
I saw this on The D&O Diary. Ever-thoughtful, Kevin makes a number of interesting points about the posible consequences on corporate behaviour and further, about potential new theories of liability.
I have no idea whether the papers referred to even exist, whether they really include anything incriminating and whether there is a real threat to their release but the mere potential that the threat exists goes some way to explaining why firms are so leery of social computing and collaboration and the scope and scale of the cultural change needed before corporations will truly embrace these new tools.
This is just the latest issue the insurance industry will have to deal with for our customers.
I have no idea whether the papers referred to even exist, whether they really include anything incriminating and whether there is a real threat to their release but the mere potential that the threat exists goes some way to explaining why firms are so leery of social computing and collaboration and the scope and scale of the cultural change needed before corporations will truly embrace these new tools.
This is just the latest issue the insurance industry will have to deal with for our customers.
Wednesday 1 December 2010
This is fantastically scary...
Turning at last to insurance customer issues (this is my first post about an insurance customer, not industry concern), the Las Vegas Review (there is no link here for reasons that will become obvious) has partnered with a firm called Righthaven to sell their copyright interest in articles, after the articles are attached as hyperlinks to blogs.
Here is a hyperlink to the story...
Apparently, Righthaven registers the copyrights it acquires from the Las Vegas paper and then sues the blogs for infringement. So this very piece, with the hyperlink above, and an edited version of part of the report linked to, is potentially actionable.
With newspaper circulations diving and mass on-line conversations taking over, surely the only reasonable approach for every newspaper is to find new ways of monetizing their existing resources, skills and expertise at leading conversations?
Apologies for what I fear is about to be a miss-quote and also that I can't remember or yet find who to attribute the correct version to but 'you can't control the conversation, you can only join it...' And not buy the Las Vegas Review, obviously...
(I'll get back with an attribution as soon as I can find it...
Here is a hyperlink to the story...
Apparently, Righthaven registers the copyrights it acquires from the Las Vegas paper and then sues the blogs for infringement. So this very piece, with the hyperlink above, and an edited version of part of the report linked to, is potentially actionable.
With newspaper circulations diving and mass on-line conversations taking over, surely the only reasonable approach for every newspaper is to find new ways of monetizing their existing resources, skills and expertise at leading conversations?
Apologies for what I fear is about to be a miss-quote and also that I can't remember or yet find who to attribute the correct version to but 'you can't control the conversation, you can only join it...' And not buy the Las Vegas Review, obviously...
(I'll get back with an attribution as soon as I can find it...
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