Roads to Resilience

Scenario planning is undertaken Scenario planning helps an organisation to deal with futures that are uncertain, largely immeasurable and beyond their ability to control. Rather than focusing on optimising the expected through traditional, deterministic risk management, Scenario Planning creates a mind-set focused on the unexpected. In order to break free from the constraints of ‘everyday’ linear thinking, AIG applies a Scenario Planning approach to ‘man-made catastrophes’: “ A relatively infrequent event or phenomenon that produces unusually large aggregate losses, where the cause is man-made (e.g. terrorism, explosion, systemic financial losses, latent disease, pandemic etc.) ” (Head of Aggregation, AIG). For such ‘uncertain catastrophes, traditional, actuarial modelling techniques are inappropriate since historical loss data is often unavailable or insufficient; hence Realistic Disaster Scenarios (RDS) are developed:

1. 100+ RDSs have been identified and quantified across the business using interviews, questionnaires and workshops

2. 15 higher level Threats have been agreed and modelled

3. Presentation decks were developed for each line of business containing rationale and calibration

4. Expert panels have reviewed and validated the outputs The application of Scenario Planning at AIG does not aim to increase accuracy of a single future, to focus on a single interpretation of a possible reality and to develop programmes to deal with it, which may lead to an illusion of control and thus Risk Blindness. Instead, the benefit of RDSs is the preparation for extreme aggregated catastrophic failures, with the emphasis on preparing for these multiple futures.

Leadership and governance

At AIG there is no glass ceiling hindering the flow of information to the top of the organisation; the culture encourages employees to raise issues with senior management. Communication is an important issue for the senior management and they question “ … the people about how we communicate and how we can improve the communication” (Managing Director, UK). It is considered to be such an important issue that the company has set up a governance forum in the UK to look at this topic “ … to ensure that our communication is effective, our communication is well understood, our communication fits what our staff at different levels expect to get and our communication is diverse because there is not one communication which is going to be effective ” (Managing Director, UK). There are checks taking place at the senior levels of the company to ensure that the top teams are working harmoniously; these range from staff assessment to peer review. For example, the Chairman of the Audit Committee of AIG came to London and spent time talking to the independent non-executive directors and also the management team to make sure that “ … their view was that this was a properly functioning relationship between the management team and the non- executive directors ” (President and Chief Executive Officer, AIG EMEA Region). As part of their governance system, the company has put in place various

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Appendix A Case study: AIG