The Covid-19 pandemic has changed our perception of, and response to, risk. Mega-events such as that caused by a microscopic coronavirus have made us realise that there are systemic risks out there that have a cascading effect for which we are ill-prepared and ill-equipped. They may be defined as high-impact, low-probability events, and placed on the extreme edges of a few risk registers but they were largely disregarded by many as being too remote to be worthy of time and resources.
Besides black-swan events, of which Covid-19 is not one, there are other systemic risks which are barrelling towards us for which we are aware but also unprepared. They cannot be expected to come in our direction sequentially but may well be concurrent and hence magnify the overall pernicious effects. Some may be slow-burn issues like climate change, demographic imbalances, pollution or mass migration while others may be spontaneous like a solar flare or a super volcanic eruption. They could all reveal the severe disruption to our hyperconnected, globalised world just as Covid-19 has done, and at an even greater economic price.
What has certainly been highlighted is the failure of our approach to assessing and managing risk in general. Our traditional methodologies have not been applied rigorously enough either to reveal the hyper-connections of our complex world – hence, the cascading effect when major problems arise – or adaptable enough to allow a focus on consequences rather than causes.
With a plethora of risks, whether known and unknown, it is not possible to detail every permutation on a red-amber-green register. What appears to be the case is that events in the future are unlikely to be based on traditional frequency models. The reliance on old probability ratings based on historical events – around which much of traditional insurance industry is based – no longer holds true and we will need new approaches that reflect volatility, uncertainty, ambiguity and complexity.
To cope, we have to be agile and adaptive – the essence of resilience.
Robert Hall is Executive Director of Resilience First, a membership organisation with the mission to improve urban resilience for business communities in the UK and beyond. In the new year, Resilience First and Fusion Risk Management will publish ‘Transitioning from Risk to Resilience’, their white paper on new approaches to risk management that reflect volatility, uncertainty, ambiguity and complexity.