Conclusion  To conclude, as insurers deploy increasing numbers of models, drawing on massive amounts of data and with new analytical techniques, it is vital that they give sufficient attention to effective model risk management. Insurers need to be sufficiently confident to use their models but not so over-confident that they misuse them. 9  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  9  Chart 1: Typical method used by large life insurers to calculate their Solvency Capital Requirement (SCR) using an Internal Model (IM)  10  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  10  Chart 2: PRA’s analysis of selected internal model drift metrics from 1 Jan 2016 to 31 Dec 2017  40%  Life insurance firms 30%  General insurance firms  20% 10% 0% -10% -20%  Internal Model (IM) SCR  Standard Formula (SF) SCR  Net Best IM SCR / SF SCR IM SCR / Net Estimate BEL Liabilities (BEL)  Source: Solvency II regulatory reporting and Bank calculations  11  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  11  Chart 3: Alternative perceptions of modelling and its uses  Source: Adapted from Model risk – illuminating the black box (https://www.actuaries.org.uk/practice-areas/risk-management/disbandedresearch-working-parties/model-risk)  12  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  12
It will not be long from the time when we can clearly see its negative impact to the economy and financial stability. On a positive note, technology has transformed virtually every aspect of our lives – the way we interact with each other, consume our needs, follow the news, and navigate our movements. By 2018, more than half of the global population have become internet users. Here in Malaysia, almost 90% of Malaysians are internet users, and more than half of these users conduct banking and financial activities online. Digitisation and technology adaptation is already making significant inroads in providing new solutions going forward and has become a key strategy for us to enhance financial inclusion and also protection. While this means financial institutions now have greater avenues to reach consumers, it also entails greater exposure to emerging vulnerabilities and risks such as cyber and technology risks. This needs to be properly managed, otherwise it can potentially trigger grave systemic consequences. In addition, there are also the gradual and structural changes that we cannot ignore. Over the last 20 years, the global population has more than doubled to reach 7.5 billion. This has posed significant challenges for policy makers and governments to appropriately allocate capital and finite resources. Every country including Malaysia is experiencing ageing population growth and will be affected by demographic changes either today or in future years. Declining share of working-age population and higher number of old-age dependents will strain the healthcare systems and place an upward pressure on costs of pension schemes.