Black Swans: Yes, It Can Happen Here
One of the most difficult phrases to digest without becoming frustrated or judgmental is the oft-repeated, “I never thought that could happen here.”
Most painfully, we hear it time and time again in the aftermath of the mass school shootings that terrorize this country. Shocked parents and neighbors, viewing the carnage, voice that they can’t believe this happened in their neighborhood.
Not to be mean, but why couldn’t it happen in your neighborhood?
So it is with Black Swans, a phrase describing unforeseen events, made famous by the former trader and acerbic critic of academia Nassim Nicholas Taleb.
We at Risk & Insurance® define these events in insurance terms by saying that they are highly infrequent, yet could cause massive damages. This year, for our annual Black Swan issue, we present two very different scenarios, both of which would leave mass devastation in their wake.
A Mega-Tsunami Is Coming; Can the East Coast Even Prepare?, written by staff writer Autumn Heisler, profiles an Atlantic mega-tsunami, which would wipe out lives and commerce along the East Coast.
On the topic of whether the volcanic island of La Palma, the most northwestern of the Canary Islands, could erupt, split and trigger an Atlantic mega-tsunami, scientists are divided.
Researchers Steven Ward, a geophysicist at UC Santa Cruz, and Simon Day of University College London, say such a thing could happen. Other scientists say Day and Ward are dead wrong; it’s an impossibility.
One of the counter-arguments is backed up by the statement that there has never been an Atlantic mega-tsunami. It’s never happened before and thus, could never happen here. See exhibit “A” above, re: mass school shootings.
Viral Fear: How a Global Pandemic Kills an Economy, written by associate editor Katie Dwyer, depicts a killer global pandemic the likes of which hasn’t been seen in a century.
Tens of millions of people died during the Spanish Flu outbreak of 1918.
Why it could happen again includes the fact that it’s happened before. The science on influenzas, which are constantly mutating, also supports just how dangerous a threat they pose to millions of people beyond the reach of antibiotics.
Should a mutating avian flu, for example, spread widely, we could see a 10 percent drop in GDP, mostly from non-physical business interruption.
As always here, the purpose is to do exactly what insurance modelers and underwriters do; no matter how massive the event, we create scenarios, quantify possible losses and discuss risk mitigation strategies. &