Speaking after the launch of the Global Risk Report, Zurich’s chief risk officer highlights how interconnectedness is amplifying risk

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Reinsurers should take more heed of the interconnectedness of risk, according to Zurich chief risk officer Cecilia Reyes.

In a recent interview, Reyes spoke about the impact the interconnectedness of risk was having on modelling and measuring risk.

“When you model multitudes of risk, the correlation of this risk is very important. It is important to understand that interconnectivity as overall risk level will increase as interconnectivity increases.”

Reyes, who spoke at the launch of the World Economic Forum’s Global Risk Report 2016 which she co-authored, believes that “If risks are interconnected, diversification doesn’t work”.

Expanding on this, Reyes said: “You can no longer rely on diversification to reduce your risk. Modelling, parameterising the level of risk, and [assessing] how they are interconnected, are very important when you measure your overall risk level.”

According to Reyes, the drive for better understanding of interconnectedness is coming from primary insurers so that it can be used to inform reinsurance strategies.

“Primary insurers will have to take into account the interconnectedness because in many cases reinsurance strategy are geographic based and weather-event-based – whether it’s for windstorm, drought or flood.”

She continued: “I think it will significantly drive primary insurers reinsurance strategies and as such, the reinsurer who is providing the protection. To be able to price the risk correctly, the reinsurer has to equally understand its growing interconnectedness.”