Scenarios for business management
Understanding new threats through the development of scenarios is a technique that is used extensively at the Centre for Risk Studies, building on many years of precedents in management science. The Centre continues to refine methodologies for developing scenarios and improving their usefulness in decision support.
Scenarios are used in many different aspects of business, from preparedness planning, to financial stress testing, insurance accumulation control and deterministic loss estimation, regulatory requirements, and strategy planning. Our research continues to try to define best practice in the design and use of scenarios, particularly the assessment of severity and likelihood, sensitivity to major variables, and uncertainty distributions in scenario variants.
In insurance, there are many lines of business that have clash potential, where losses could be experienced across multiple exposure categories by emerging and systemic threats. Developing a multi-line exposure data schema is a priority for the insurance use cases of research at Cambridge Centre for Risk Studies.
Some of the more extreme scenarios result in market shocks, and have investment portfolio impacts. Currently we are proposing to develop and publish a standardised data schema to describe representative asset classes in institutional investment portfolios, to enable investment managers to assess their likely impacts from scenarios.
Insurance use cases
Insurance companies use the research outputs from Cambridge Centre for Risk Studies to explore new potential threats and opportunities for new markets and products, for example in the development of the cyber insurance market. In new markets and for potential systemic threats, accumulation management is important.
The Centre currently seeks to improve the research outputs for insurance companies to make better use of scenarios in portfolio-specific loss estimation, clash from complex and systemic risks, and balance sheet risk.
Enterprise risk management
Companies augment their internal risk registers with external threat assessment checklists, such as our Cambridge Taxonomy of Threats. Our research outputs are used for annual report risk declarations such as 10K reporting, regulatory and shareholder reporting, long term viability statements, insurance purchasing strategies, crisis and continuity management, and monitoring of risk metrics across internal business units.