The concept of ‘scenario analysis’ is often referred to as an essential tool in the risk manager’s tool kit, but is rarely fully explained. Put simply, scenario analysis is an exercise conducted to consider the questions ‘what might happen and what would we do?’ It can help to highlight risks and opportunities in the short and long term and used to test the effectiveness and efficiency of the relevant controls in place. However, scenario analysis is not a stand-alone activity and it should form part of the organisation’s overall risk management system, which in turn should be aligned to the organisation’s business model.

At its annual conference in June Airmic will unveil its guide to scenario analysis and follow up with a member-only seminar at the event. The guide will take the risk manager through the seven stages of scenario analysis, illustrating these with three applications of scenario analysis: rehearsal of crisis and business continuity plans; stress testing insurance cover following a claim; and horizon scanning and principal risk assessment to help the organisation anticipate problems and seize new opportunities.

These applications are aligned with the principles of resilience as highlighted in the association’s report ‘Roads to Resilience’ and specifically the principles of the risk radar, rapid response and review and adapt. They are also aligned with requirements of the Insurance Act 2015 as regards fair presentation. The duty of fair presentation requires the insured to disclose every material circumstance that it knows or ought to know. Scenario analysis can be used to test ‘compliance’ against this requirement.

Supported by member case studies, I believe the guide represents essential reading for risk managers in supporting their leadership role as a business partner in managing
today’s and tomorrow’s risk agenda.

The risk manager can find themselves relating with and influencing senior colleagues across the organisation. And that really is an exciting prospect.

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