The new vision of risk

The visualisation of exposures plays a pivotal role in risk mitigation.

Now virtual reality (VR) is promising to bring new detail and precision to risk forecasting.

“The use of virtual reality will help underwriters and risk managers visualise risk in new ways by enabling them to experience risk scenarios that can’t be recreated in the real world because they are too dangerous or too expensive,” says Dan Cunningham, regional account engineer of AIG, who partnered with research and engineering institution Clemson University on this area.

“Virtual reality will also help improve risk prevention. Imagine being able to visualise a building or product before it is created and identifying elements that, if left unchanged, could cause bodily harm.”

Cunningham says risk managers will better understand risks by experiencing them in a safe environment. “These insights will make them more aware of risk factors and enable them to address them before they can become an issue. For example, in a training environment, like at Clemson University, virtual reality can be used to educate engineers and underwriters about fire risks without exposing them to hazardous situation or materials.”

Innovative technologies such as wearables, virtual reality and drones will become an indispensable part of a risk manager’s toolkit, he says.

Jeremy Bailenson, a founding director of Stanford University’s Virtual Human Interaction Lab, is just as enthusiastic. “VR is an amazing tool for visualising crisis,” he says. “For risk forecasting, the magic of course lies in setting the modelling parameters to generate scenarios which are most likely to be valid, which largely occur outside of VR. Where VR comes in is to transport the forecaster into a visceral experience of the future, so that he or she can perceptually experience future scenarios to make the outcomes less abstract.”

Harald Scheule, associate professor at UTS Business School, says: “I believe simulation-based forecasting is very valuable in risk forecasting. Simulations are able to provide scenarios based on model parameters estimated with historic data, but result in different, possibly more adverse realisations than those actually observed.”

Bob Stone, director of Birmingham University’s Human Interface Technologies Team, says that, as with all things implemented using VR, augmented reality or mixed reality technologies, it all depends on how well the content and interactivity is designed and how well the end users’ needs are taken into account.

Lazada Group head of group risk and internal audit Gordon Song agrees. He says: “VR, like any form of analytical tool or technique developed in the last two decades, will certainly be useful – but, as with all tools, they will only be as useful as the people who created them. To be more precise, all models and tools require assumptions and variables, and these have proven to be limited in the complex world we live in. The ‘risk’ lies in over-relying on these tech-enabled tools and moving too far away from human judgement, which, in my opinion, is not replaceable.”

But Stone says VR will be useful in risk forecasting for ‘what-if’ scenarios: “We have been using what is referred to as mixed reality, where we can develop future interactive command stations which present the end user with a range of carefully formatted and selectable media sources – social network feeds, live video streaming from the BBC, Sky News, and so on, live video from remote systems, such as drones and related technologies, weather predictions – all supplementing a central interactive 3D representation of an emerging scenario. In our case, the scenarios are very much based on insurgent activities, but others could be modelled.”