The property and casualty insurance business isn’t what it used to be. Traditional methods of deciding risk management worked well in its time. According to the managing director of the Wharton Risk Management and Decision Process Center (WRMDPC) in Pennsylvania, the time has come where changing the way the industry calculates risk is essential to its survival.
In the property and casualty sector, the traditional notion was that catastrophic events only occurred about every 25 years or so. It also counted on the fact that the risks were, for the most part, local and could be easily determined and calculated for that area.
These assumptions simply do not apply anymore. The growing globalizations of businesses, technology and our economic and social networks, have woven together a world that depends on these components being consistently accessible.
By looking at just one recent catastrophic event, we can see that even being half way around the world from a disaster doesn’t keep it from reaching our shore; whether economically or socially; it can, and will affect us. There have been more than 16 catastrophic events in the last ten years. The past few years we haven’t gone six months without a major calamity that affected various parts of the world at the same time.
Dr. E. Michel-Kerjan, managing director for WRMDPC in Pennsylvania, states that the property and casualty industry needs to design a new structure for strategically managing risk assessment. There are six common traits that identify what the new structure is about.
A growing globalization and dependency between economic and social activities; moving from thinking “local” to managing globally when disasters occur; looking at disasters in the long term instead of always thinking about things in the short term; calculating risks when uncertainty is all you are sure of, and looking at how the private sectors affect exposure of the public sector.
Extreme costs and extreme benefits are the last trait. How can businesses develop new products or technology to help in times of disaster? The times have changed. The world has changed. Now it’s time for risk management to change.