Know your correlation: An interactive game

Read the README file!

Summary of activity: A dice-rolling game, simulating 6 causes of loss (i.e. possible hazards) and how dependency affects the chance of loss exceeding a threshold.

Why is the training important: In short, because diversification is the basis of all (re)insurance, and correlation (a.k.a. dependency) destroys diversification. So, it’s fundamental.  If we get dependency wrong, we mis-estimate risk, mis-price risk etc ….

Key themes: 

• Raising awareness of dependency (e.g. between hazards, lines of business, peril-regions) What is it? Why does it matter in my day job?
• The main metrics – Annual average loss (AAL) and 1-in-200 year return period losses.
• With limited events (observed or simulated), how do we cautiously interpret simulation modelling?

Level & Audience: Introductory level, for the widest audience. No equations! For relatively new starters in the field of catastrophe risk management, or PhD students studying compound or multi-hazard risk. It can also serve as a reminder to those experienced in modelling dependency. 

Duration: ~1h of effort.