Why pure risk expertise is no longer enough

The future of risk management belongs to risk professionals who understand not only risk but also systems, Zurich’s chief underwriting officer, Penny Seach, told delegates in her keynote speech in Birmingham.

Risks today “no longer stay in their lane,” she said, and therefore cannot be neatly categorised, assessed or mitigated in isolation. “If risks refuse to stay in their lane, why do our organisational structures try and put them back into lanes?” she challenged.

Crises are rarely caused by the initial risk but by the consequences and the interconnections, Seach explained. Indeed, the interconnected nature of risk is a defining feature of the modern risk landscape and a “fundamentally different challenge” that demands different approaches to risk and insurance, she said.

The Covid-19 pandemic is a case in point, demonstrating how a single event triggered cascading consequences across multiple systems. What began as a health crisis, very quickly became economic, supply chain, political and inflation crises.

Traditional techniques leading to risk blind spots

In this context traditional risk management techniques are not sufficient, she warned. Individual risk-based approaches focused on probabilities and historical experience are not designed to navigate today’s complex environment. Risk registers still have a place – but they tell us little about the connections and accumulations.

“The largest disruptions emerge not from the risks that we understand the best, but from dependencies that we understand the least,” Seach observed.

A dependence on such methods opens up dangerous blind spots, she warned. First, there is an overreliance on experience. While experience is valuable for pattern recognition and practical judgement, it is inherently backward looking and hampers our ability to recognise new threats.

The second blind spot is confusing visibility with understanding. Today’s risk professionals are armed with dashboards, KPIs and data analytics. However, access to information is not the same as understanding the risk: “How often do we mistake seeing data for understanding what the data is actually telling us?” questioned Seach.

From probability to pathways

It is therefore crucial for the success of the risk profession that we move away from probability-based risk assessments and shift instead to pathways and scenarios, she argued. Risk professionals must become systems thinkers and connectors across disciplines. They must navigate uncertainty and identify hidden dependencies.

This requires a shift in mindset: the willingness to think the unthinkable and the curiosity to look around corners. “We're no longer assigning a probability to the question. Instead, we are exploring pathways,” she said.

Technology risk is a good example of where this approach will be needed: “We know that we have no experience to teach us the way forward here. As an industry we really need to have the courage to think differently and to speak up.”

Ultimately, the job of the risk professional is not to avoid uncertainty – that is impossible. Their job is to help their organisations consider the possibilities and navigate with confidence:

“Organisations don't fail because they got the probability wrong,” observed Seach. “They fail because they never seriously considered a plausible future.”