Once the wave of political demonstrations and riots began to emerge in the Middle East at the tail end of 2010, Zurich risk professionals knew that the so-called Arab Spring would have serious ramifications, not only for its multinational customers doing business in places like Egypt and Syria, but in other parts of the world as well.
Using a proprietary global risk analysis engine known simply as the Zurich Risk Room, the insurer was able to examine a range of conditions that were faced in these countries -- as well as in Libya and Tunisia -- to try and anticipate which other countries might see the rise of an Arab Spring of their own, given similar risk exposures.
"We tried to identify what type of commonalities we could find across these countries with respect to the country risks that could have led up to the Arab Spring," said Daniel Radulovic, the Zurich, Switzerland-based proposition manager for Zurich Financial Services and the face behind the Zurich Risk Room, which came out with a mobile app version in January 2012.
"We also back-tested the data by looking at risk values from August 2010, some three to four months prior to any manifestation of the Arab Spring in the region," he said. "We found that countries like Russia, Venezuela, and Burma, among others, had had very similar overall exposures to the same set of risks as the Arab countries in question. Next, we plugged our customers' global footprints into the same framework to give them an analysis of which countries where they operate might have similar disruptions in the future, and which risks in particular to monitor for signs of worsening."
Among the "economic disparity" risk factors identified were rising food prices, high inflation and relatively low access to credit, as well as a weak rule of law and serious demographic shifts. The political volatility risk factors consisted of high exposure to terrorism, crime and corruption; expropriation; and political violence.
The Zurich Risk Room currently accounts for some 80 individual risks across six categories -- business, economic, political, environmental, societal and technological -- and is updated on a monthly basis for more than 150 countries. The true power of the tool, according to a recent report conducted on behalf of a Zurich client, lies in its ability to illustrate the result of very complex risk modeling in an intuitive and easy to understand way. Among other things, the system generates a measure of country risk by calculating the country's distance from the point of no risk, otherwise referred to as "Nirvana."
Radulovic is particularly suited to his role as the individual responsible for expanding, enhancing and promoting the Zurich Risk Room. His academic background is based in international political relations and international finance. As part of his academic career, he has worked as an analyst with the U.S. House of Representatives, as well as an analyst and consultant to the British House of Commons and several non-governmental organizations (NGOs).
He noted that the Risk Room's 3-D modeling "allows us to visualize raw data in a way that helps us make sense of the data more easily." For instance, he said, "Two countries plotted very close to one another would indicate a very similar overall exposure level. Countries that vary greatly with respect to their positioning, obviously, have very different levels of overall risk exposure. By looking at their relative positioning, we can quickly assess in which dimensions they might differ."
Whereas the full-featured Zurich Risk Room is offered free of charge only to Zurich corporate customers -- as well select academic and NGOs -- the mobile apps for iPad and Android tablets are offered free of charge to anyone who would like to download them, using iTunes for iPads and Google Play for Android devices.
Zurich customers are full of accolades for the system. "We used the Zurich Risk Room to help guide our planned expansion into emerging markets. The tool provided an intuitive portrayal of the comparative riskiness of countries," said Danny Wong, Intercontinental Hotels Group's (IHG) director of corporate risk management.
IHG combined findings from the Zurich Risk Room with its own data on potential hotel demand and financial value to create a risk-and-reward tradeoff scenario for each of the emerging markets in the project. "This risk-adjusted view of attractive emerging markets was well received by senior management," said Wong.
"The Zurich Risk Room gave our strategy team a risk management lens on our decision making and sat at the heart of our learning," added IHG's John Ludlow, senior vice president of risk management.
--By Janet Aschkenasy
September 15, 2013
Copyright 2013© LRP Publications