The Known Unknowns

Last week I had the pleasure of travelling to Madrid and in the moments that I wasn’t dreaming of drinking clara con limón in Plaza Mayor or eating churros in San Gines, I had a presentation to give on macroeconomics and its application in the valuation of Business Interruption (BI) losses to an audience of 150 people from the insurance market. 

My experience of studying economics as an undergraduate was shrouded in ambiguity – I watched as my lecturers redrafted their textbooks and multidimensional equations to explain the collapse of the Western economies in the great recession of 2007/8. Since then, volatility has become the norm, which in turn presents challenges for accounting in general, and forensic accounting in particular.

Where businesses previously enjoyed a level of predictability, they are now faced with large fluctuations in exchange rates, commodity prices, interest rates and demand resulting from the financial crisis, the aftermath of the Eurozone crisis, and more recently the slowing down of the emerging economies.

And this is not the end by any means. In the medium and long term, we are going to have to contend with what Donald Rumsfeld famously termed ‘the known unknowns’ – high probability shocks with unquantifiable impacts. Amongst these is Brexit – we have already seen the bitter-sweet collapse of the pound: the rally in British exports accompanied by the spectre of stagflation just around the corner. The long-term impact of the world’s fifth largest economy changing its relationship with the rest of the continent (in a way that has yet to be defined) is far less certain.

We await the outcome of the US presidential election with the same trepidation that we felt before Brexit: one candidate is promising a new era of protectionism, low taxes and immigration controls whilst the other’s fiscal proposals include infrastructure spending, a minimum wage and tax breaks for long-term investors. Whichever candidate wins, the economic ramifications of the political gulf that has opened up during the course of the campaign could be as significant as the policies of the candidates.

Following a catastrophic incident, our clients – whether they are insurers in Spain or worldwide – and indeed their clients, the Insured, look to us to offer a route through this fog. Now more than ever we must understand the macro and microeconomics of their operating environment. No business will be immune from the known unknowns, but with our help, we can ensure that our analysis of their business reflects the very latest economic developments to help see that they are treated fairly and put back into the position they would have been in, but for the incident.

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