VW scandal could have been foreseen: Russell Group
Volkswagen’s industrial-scale emissions fraud could have been better assessed using state-of-the-art scenario modelling, according to Russell Group, provider of software and services to the global insurance industry.
The UK firm claims the use of cheating software in VW’s diesel cars to deceive emissions regulators is a classic case of an ‘unexpected’ event - one that shrewd risk analysis should have foreseen.
Russell Group deploys its proprietary analytics to the world’s major underwriters, giving them multiple event scenarios to help accurate risk assessments and pricing across the specialty insurance classes, including product liability.
The firm’s ALPS risk management modelling software simulates an ‘event set’ that can then be used for pricing and other risk management analysis.
The same event set could be used to inform reserving, business planning, forecasting, and to produce accurate underwriting risk distributions for capital modelling. Such a simulated event set based on past losses and current exposure permits a greater range of loss scenarios to be explored than does a purely historical analysis.
Suki Basi, managing director of the Russell Group said even the most unlikely conspiracy, such as the “defeat devices” embedded in 11 million Volkswagen and 2.1 million Audi cars worldwide, can be factored in to risk modelling.
“It is far from inconceivable that emissions control-manipulating software in engines would be used on an industrial scale to hoodwink investigators,” said Basi. “The commercial consequences of non-compliance with vehicle emissions regulations certainly gave an incentive to cheat and ‘game the system’ in VW’s favour.”
Credit Suisse estimates that the cost to VW in terms of recalls and fines could reach $87 billion, which is more financially damaging than the Deepwater Horizon oil spill was to BP. Volkswagen’s financial services arm has also been hit by the scandal, having to pay more to borrow money to loan to its customers, according to Credit Suisse.
