Opinion pieces: On data and models: Is more always better?
Abstract
With regards to data and model sophistication, the new mantra for financial services and FinTech seems to be ‘the more the better’, supported by attractive business cases in risk underwriting, fraud detection, customer lifetime value management, conditional investment risk/return optimisation and improving customer journeys, to name a few. However, more data and more sophisticated models are not always a universal panacea and may lead to bad business outcomes if not managed appropriately in the context of the desired business outcome. This paper summarises the evolving business cases for increasing data and models in the risk management domain and their associated risks. Making the associated risks transparent naturally leads to the conclusion that a timeless risk mitigation approach — common sense — is critically necessary to complement the more structured model risk management (MRM) framework that is evolving.
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Author's Biography
Thomas C. Wilson is an honorary professor of applied risk in insurance at Ludwig Maximilians University, and Chief Executive Officer of Allianz Ayudhya Pcl., Thailand. Prior to his appointment in 2020, Tom was Chief Risk Officer (CRO) of Allianz Group from 2008, CRO of ING Insurance from 2005, Global Head, Oliver Wyman Finance & Risk Practice from 2002, Chief Financial Officer of Swiss Re New Markets from 1998 and Global Head of McKinsey Risk Management Practice from 1990. Tom is widely published and author of ‘Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions’. Tom earned his BSc in business from U.C. Berkeley and a PhD in economics from Stanford.
Citation
Wilson, Thomas C. (2023, December 1). Opinion pieces: On data and models: Is more always better?. In the Journal of Risk Management in Financial Institutions, Volume 17, Issue 1. https://doi.org/10.69554/JBGR2468.
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