Understanding our behavioural risk biases, accepting they exist and designing strategies to address those biases can help us better prepare for extreme events.
That is the message from Howard Kunreuther, emeritus professor of Decision Sciences & Public Policy, and co-director of the Risk Management and Decision Processes Center at the Wharton School, University of Pennsylvania.
Speaking ahead of InsuranceERM’s Insurance Risk & Capital Americas virtual conference next week, he highlighted how black swan events are multiplying but people and organisations tend to ignore low frequency, high impact events until they actually happen.
Using Covid-19 as an example, Kunreuther asked why decision makers did not consider a possible pandemic during January and February this year and only took Covid-19 seriously in March.
He added: “It took 9-11 to pay attention to terrorism. Insurers were insuring terrorism without worrying it before 9-11, even though we had the 1993 World Trade Centre disaster. There’s a very important aspect here, not only for insurers, but for organisations in general.”
He urged insurers to apply assessment “early in the game”. Insurers should develop risk management strategies “with the idea that they are preparing for something that may happen but has not happen yet”.
Kunreuther said the pandemic provided opportunities for the insurance sector to address climate change and other emerging risks.
“This is an opportunity to take advantage of the pandemic. We are having less climate emissions because we are being forced not to do things. But what we are not doing is taking the steps to curtail climate change in the way we should be doing.”
He stressed the need for public–private partnerships and well-enforced regulations to deal with future catastrophic risks.
“Let’s use the pandemic as a way of opening our eyes to sum up these other kinds of risks that we are going to be facing – and we are facing right now.”
The full interview with Howard Kunreuther can be viewed by joining the Insurance Risk & Capital Americas virtual conference on 22-23 September, an exciting new initiative, combining a mixture of live-streamed and pre-recorded content, as well as networking via a dedicated virtual event platform.
It features three tracks covering all aspects of risk, investment and climate issues for re/insurers in the Americas.
The virtual event is FREE for insurers, regulators and commissioners to attend. Email [email protected] to receive an invitation.
To register for the conference and view the agenda click here
Once registered, the online platform for participating and networking at the virtual event can be found here
Companies:University of Pennsylvania