Study of how the brain computes risk wins Lloyd's science prize
Thu 24 Nov 2011
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Research revealing how the human brain makes risk-taking decisions and how quickly it can learn the correlations between risk and reward has won the 2011 Lloyd’s Science of Risk Prize.
Using the latest brain-scanning technology the winning team, led by Klaus Wunderlich at University College London, beat off competition from more than 60 other entrants to take the top prize with their investigation into how the human brain makes decisions involving risks.
The research suggests that the human brain has developed a better mechanism for learning from continuous observation than from studying statistics or charts.
The findings, which could be used to promote better decision-making strategies, are of particular relevance for the insurance industry where they could lead to a better understanding of how underwriters interpret risks and make financial decisions.
Further prizes were awarded in four other categories:
Climate Change
- Adam Scaife and his team at the Met Office warned that current models of climate change underestimate future rainfall by omitting the impact of the stratosphere. Their refined model predicts a potential doubling of the predicted increase in the frequency of extreme winter rainfall over large regions of Western Europe compared to other current climate projections.
Biological/Technological
- Angus Law of the University of Edinburgh argues in his paper that the trend towards open plan offices has changed the types of fire likely to occur in modern buildings. His paper uses science to look at ways to improve engineering guidelines and building design, reduce the risk of travelling fires, and help insurers better quantify and model fire risk.
Natural Hazards
- Norman Kerle of the University of Twente assessed the accuracy of satellite technology maps increasingly used by insurers to assess risk-prone areas. He argues that current mapping methods have not been assessed critically enough and improvements in their standards are needed if insurers are to have true faith in them.
Insurance Operations
- Andreas Tsanakas of Cass Business School, part of City University London analysed the various capital allocation exercises used to invest risk capital, and offers a unifying framework and business-driven interpretation to link risk appetite and decision-making.
Richard Ward, Chief Executive of Lloyd’s said:
“Yet again, the entrants into the Science of Risk prize have provided fascinating and thought provoking insights to a range of issues of importance to the insurance industry. The record catastrophe losses facing the industry this year are a reminder of the importance of understanding risk, be it an earthquake, climate change or cyber crime.
“Lloyd’s provides a unique market for specialist insurance and re-insurance, where risks are expertly calculated. By working in partnership with the academic world insurers can encourage and shape valuable scientific research to help businesses better identify and manage risk.
“We are proud of our past but are always looking to the future – scanning the horizon for new and emerging risks and helping business deal with them. The Science of Risk Prize is one important way of us doing that.”
Dr Dougal Goodman FREng, Chairman of the Judging Panel and Chief Executive of the Foundation for Science and Technology, said:
"I was very impressed by the quality of the papers submitted. The Prize is an excellent way to bridge the gap between the London insurance market and the research community. Better use of the output of research can improve underwriting and strengthen London's place in the global insurance market".
Notes to Editors:
1. The Science of Risk Prize was launched by Lloyd’s in 2010 to stimulate cutting edge research into the latest emerging risks facing businesses. As a key provider of protection for natural catastrophes and insurance to some of the world’s leading companies, Lloyd’s underwriters face a number of challenges that overlap with areas of academic research, such as climate change or studies into emerging risks.
2. The winning papers can be found at www.lloyds.com/scienceofrisk
3. The judging panel consisted of:
- Trevor Maynard, Head of Exposure Management and Reinsurance, Lloyd’s
- Jerome Kirk, Head of Actuarial Services, Lloyd’s
- Dr Dougal Goodman, CEO of The Foundation for Science and Technology.
- Dr Steven Wilson, CEO, Natural Environment Research Council (NERC)
- James Orr, Chief Acturary, General insurance, Financial Services Authority
- Professor Simon Pollard, Head of Department, Environmental Science and Technology, Cranfield University
The winner is awarded a £5,000 cash prize, while the category winners take home £2,000 each.
For further information, please contact:
Tom Foxton
Tel: +44 (0)20 7327 5514 Fax: +44 (0)20 7327 5229 Email: tom.foxton@lloyds.com
About Lloyd’s
Lloyd's is the world's specialist insurance market and occupies fifth place in terms of global reinsurance premium income, and is the second largest surplus lines insurer in the US. In 2011, 88 syndicates are underwriting insurance at Lloyd's, covering all classes of business from more than 200 countries and territories worldwide. Lloyd's is regulated by the Financial Services Authority.
