One of the things that makes working in risk both interesting and challenging is the need to draw together information from a wide range of sources. 

At our recent LCP CRO roundtable, we discussed how the Risk Function can help businesses better allow for emerging risks in reserving and pricing.

These risks pose particular challenges as there is very little (if any) data available to measure or monitor. The Risk Function is well placed to oversee the firm’s response to emerging risk, to ensure that they are considered consistently and holistically across the relevant business areas.

In reserving, for example, there should be a clear link between emerging risks and loadings for events not in data (“ENIDs”). In practice, the thinking on these topics is not as joined up as it could be.

Here, the Risk Function can help by:

• Working with reserving actuaries to ensure that ENID loadings include an appropriate allowance for emerging risks, distinct from allowances for truncations in the distribution of existing claims.
• Ensuring feedback loops are in place so that, as emerging risks start to crystallise, the allowance moves from ENIDs to the core best estimate reserves.

In pricing, there may be certain underwriters who have expertise in risks which are routine in certain classes but are emerging elsewhere. (For example, in the early days of cyber insurance, specialist cyber underwriters often reviewed policy wordings on other classes of business which effectively provided “silent” cover to help better understand and manage their core exposures.)

Here, the Risk Function can support by:

• Taking a “helicopter view” of the book, to ensure that any expertise on emerging risks is being actively applied to all relevant business lines.
• Regularly collaborating with experts across the business to ensure the risk register and risk dashboards evolve as the emerging risk develops.

It’s clear that the Risk Function has a key role to play to ensure the various views of new risks are brought together and applied consistently across the business. This will help ensure you are on the front foot in understanding, managing and quantifying these risks as they emerge and crystallise.