Once Again – Failure to Adequately Assess Risks Has Dire Consequences

Human Error Triggers Rise in Catastrophe Cost. Article in CFO.com, June 19. The economic losses from natural disasters and other extreme events have dramatically increased in each of the past three decades. But industry and governments still fail to protect against catastrophic risks.

Economic and insured losses against natural disasters, technological accidents, and terrorism have risen every decade since the 1980s, says Munich Re. The international insurer estimates that economic losses from natural catastrophes hit $1.6 trillion in the 2001 to 2011 period. The Japan earthquake of 2011 alone caused an economic loss of $210 billion (along with insured losses of $35 billion to $40 billion).

Why? The escalating costs of disaster are more about flaws in human behavior and risk management than bad luck, say two business-school professors in a recently released paper, “Managing Catastrophic Risk.” Howard C. Kunreuther of the Wharton School for Risk Management and Geoffrey M. Heal, a finance and economics professor at Columbia Business School, say the overarching reason for the high costs of catastrophe is that companies and individuals are “locating in harm’s way while not taking appropriate protective measures.” In particular, they are failing to guard against low-probability, high-consequence events.

A copy of the full paper ( 20 pp.) can be found here.

1 thought on “Once Again – Failure to Adequately Assess Risks Has Dire Consequences

  1. I still wonder what kind of technology the State of Vermont is going to use when they rebuild in the same complex where hurricane Irene displaced 1500 employees due to massive flooding. The town of Waterbury, including the Waterbury State Complex was flooded and now, nearly a year post Irene they sit planning who is going to move back once a new building is constructed. The Winooski River that borders this site, sits downstream from the Waterbury dam. Should that go, this water will be headed right for the town and this complex.

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