Age of vulnerability will place risk management centre stage: Kessler

Dennis Kessler, chairman and CEO of SCOR, one of the biggest reinsurers in the Asia-Pacific region, believes that the arrival of the Covid-19 pandemic will usher in a new age of vulnerability and risk aversion that should finally shove the risk management community in private and public sectors to centre stage. Mr Kessler is never shy to give his opinion and it is usually worth pausing to pay attention. He has been very vocal in his public comments about the implications and meaning of the pandemic, and given various readable and thought-provoking interviews to leading French newspapers and magazines in recent weeks. Risk and insurance managers across the Asia-Pacific region and worldwide ought to heed his comments given to Le Monde newspaper at the start of April because they basically lay down a challenge to risk professionals across all sectors – private and public – to step up to the plate as the crisis paralyses the global economy and leaves business leaders scrabbling for answers. As Mr Kessler has repeatedly pointed out, this pandemic, more than any other recent significant catastrophe, has seriously laid bare the inadequate attention paid by governments and, perhaps to a lesser extent business, to structured risk and business continuity management. In his view, the world has changed and the new age of vulnerability gives the risk management community an historic opportunity to really prove its value. Mr Kessler believes aversion to risk is going to increase significantly, with economic, social and political consequences, because of the pandemic. He asserts that this pandemic shock shows, for example, that the value placed on the absence of suffering, and on life, has risen substantially throughout the world. In his opinion, physical integrity has made a “historic leap” in the scale of values ushered in “the age of vulnerability”. This age will, in Mr Kessler’s view, place risk management at the centre of all responsibilities. The evolution to this stage is rooted in the natural desire for, and belief in, certainty, security and stability, which a shock such as this pandemic can seriously undermine. Risk and insurance managers are supposed to provide these very core values and so inevitably must play a greater role in the rebuilding process. The former economist points out that all economic developments involve a complex combination of factors such as strong trends, recurring cycles and near constants, accompanied by random movements that are ultimately quite marginal. All the key variables – consumption, savings, investment, productivity, interest rates and the like – interact, but overall there is usually relative stability, and therefore a certain predictability, in the economy as a whole. This, he wrote in his article for Le Monde, is all the more true given that that the management of fluctuations through monetary and fiscal policies has improved considerably. The same applies to the understanding of medium- and long-term growth factors. “As a result, forecasters often fight over decimal points,” he said. But, Mr Kessler added, this vision of an economic system that follows an ultimately rather narrow evolutionary path proves deficient each time there is a major shock – and these shocks can take various forms such as wars, terrorist acts, systemic banking crises, major natural catastrophes and so on. “Such shocks create 'disruptions' that lead to imbalances in the way societies function and mark the history of civilisations,” he wrote. Mr Kessler said the shock of the current pandemic is different from those the world has seen recently, such as the attack on the World Trade Center in 2001, the financial crisis in 2008, and the earthquake and Fukushima nuclear disaster in 2011. It is much deeper, more serious and longer lasting, in his view. “This shock is not circumscribed by space and time. Strictly speaking, it is global: unlike many other shocks, it has no one specific geolocation. It unfolds over time, following vertiginous exponential curves. A pandemic is the very essence of a serial risk that unfolds like an avalanche: the global shock fragments and refragments into billions of microshocks. Secondly, this shock has no one identified 'driver'. It presents a risk that is both collective and individualised – it is simultaneously exogenous and endogenous: the risk is external to the person it affects but also depends on everyone’s behaviour in terms of protection and precaution. Its transmission to others is partly random but also depends on the behaviour of each infected person and, obviously, on the effectiveness of the healthcare system and the public policies adopted,” he explained. “The main characteristic of pandemic risk is its invisibility. Invisible risks are the most serious. They trigger the key concept of vulnerability. Everyone feels that they could be affected, that they could suffer, that they could die… but they are also afraid of contaminating others and therefore of contributing to the spread of this mortal danger. We are infinitely more afraid of danger we cannot see than of danger we can identify. Anxiety in the face of what we cannot pin down – linked to vulnerability – is far more devastating than the fear we experience when confronted with an identified threat. Many other invisible risks have created the same kind of feeling of vulnerability: asbestos, AIDS, nuclear risk and – further back in history – the plague, cholera, leprosy and the Spanish flu,” continued Mr Kessler. The SCOR leader said this general, global sense of vulnerability is reflected in behaviour that can be described as paralysed. This, he said, has been partly caused by “anxiety-inducing” management by the public authorities – they have been caught by surprise by this shock, the scale and severity of which has been underestimated. “All economic players are concerned, both demand and supply are profoundly impacted, transactions are drying up, projects are vanishing, stock markets are crashing and so on. In response, major monetary and budgetary resources are being deployed, which will certainly cushion the shock, but will not prevent a change in the trajectory of the global economy,” he commented. “People’s aversion to risk is going to increase significantly, with economic, social and political consequences. This pandemic shock shows, for example, that the value placed on the absence of suffering, and on life, has risen very substantially throughout the world. Physical integrity has made a historic leap in the scale of values. The age of vulnerability will put risk management at the centre of all responsibilities. Humanity, at last, seems to care… about itself. May it find the means to help itself!” concluded Mr Kessler.

Age of vulnerability will place risk management centre stage: Kessler

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