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Knowledge@Wharton: If all of you were to look back over the past 30 years, how would you say the nature of risk has evolved and changed? Bob, would you like to start us off? Robert Meyer: The risks have always been there. To build on what Howard was saying, one of the things we’ve observed as a center is that often, when you talk to companies or individuals and ask what risks they’re most concerned about, typically, they are the things that just happened yesterday. People tend to focus on the disaster that just happened, so one of the things we try to do as a center is get people and organizations to focus not only on the event that just happened, but also to refocus on unseen risks. Just to give you an example, we work with the World Economic Forum, and every year, they come out with a survey of about 900 academics and ask them what are the risks that they are most concerned about. Typically, what you find is an awful lot of year-to-year variability in what is hitting the radar screen. For example, last year, the No. 1 thing that came up was state unrest, particularly in Europe. If you think about it, that makes sense, because one of the big news items in Europe last year was unrest in the Ukraine and so forth. But what’s interesting is a risk that was very important two or three years ago: cyberterrorism. In some sense, one of our challenges as a center is to get people and organizations to think about not just the thing that happened most recently, but to take a good long-term view of what are real risks. Often, the things you have to worry about are the things that you’re not currently thinking about. Knowledge@Wharton: Erwann, what do you think? Erwann Michel-Kerjan: …The nature of risk management has changed a lot over the past 30 years, from something that was almost exclusively technical to something that remains technical, of course, but has become more and more strategic today. More risk committees are being formed as we speak in many industries across the world. The topic itself changed, which means that as researchers, we need to change the way we approach these issues as well, whether it’s natural disasters, cyber risk or interdependencies between these risks. Maybe you looked at what was happening in Syria and thought, “Oh, it’s just a geopolitical issue.” Then three months later, it becomes an immigration issue, an economic issue in Europe. Then maybe in two months, it becomes a big issue in the U.S. The world is becoming more and more interdependent. It’s somewhat of a cliche, but I think we’re living it every day. An earthquake in China 30 years ago would have been an earthquake in China. Today, an earthquake in China has massive impact on global supply chains worldwide from Frankfurt to Detroit. ....... Michel-Kerjan: When you look at natural disasters around the world, flooding is by an order of magnitude the largest of all, in terms of number of people affected and economic cost. That’s throughout the world, and it’s true in the U.S. as well. So the center is doing a lot of work on flood-related risk, both on coastal flooding and inland flooding, trying to better understand the risk. And we’ve been doing lot of work on flood insurance as well. For instance, we have access through our collaboration with FEMA (the Federal Emergency Management Agency) and DHS (the U.S. Department of Homeland Security) to their entire portfolio of data. So we can actually crunch data — a few million data points — to try to better understand the national flood insurance program, then publish the results, and then work with the industry and also the federal government trying to improve that program. Related to that project — there is a buzzword out there: “resilience.” You know, everybody talks about resilience, and we’re still having a hard time finding one person who is against resilience, which tells me that maybe we have an issue here. But joking aside, we decided as a group to take a serious look at flood resilience in a more quantitative manner. We have a few projects related to flood resilience. We have done some work in New York City. We’re doing some work with the Z Zurich Foundation, a Swiss nonprofit funded by insurers, in five or six different countries. And in all these projects, I think instead of having one person or two people working on a paper, which some of us tend to do, we recognize we need expertise from a large number of individuals. So most of our large projects tend to involve five, six, 10 people with different backgrounds, which obviously is much more interesting for us, because you can really tackle large-scale issues in a way that you couldn’t if you were just writing your own paper by yourself. |
30 Years of Risk Management at Wharton