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Article | WTW Research Network Newsletter

A modern bestiary for risk managers

By Hélène Galy | May 7, 2020

Hindsight is of little value to risk managers but knowing your risk beasts and how to better approach them could reduce the risk of a future mauling. What other animal metaphors could better represent the current pandemic, and more importantly what are the lessons for risk managers?
Credit, Political Risk and Terrorism|Cyber Risk Management|Medioambiental
Pandemic Risk and Response

In the midst of the Covid-19 crisis, many claim to have now spotted a “black swan”. But is it really the right animal metaphor to use in this case?

Aesop often used animal characters in his fables, fictitious stories picturing a truths about human folly. Our fascination with animals continued with the medieval bestiaries, and today analysts continue to describe market behaviour using animal metaphors: bull, bear markets or the lesser known bunny market.

The boys [and girls] who cried wolf?

In one of Aesop’s fables, the boy who cried wolf had a dreadful fate: a brutal lesson on risk communication. The boy lost his credibility by creating false alarms, whether intentionally or not, and so wasn’t listened to when the real event happened.

In the case of the Covid-19 pandemic, we actually had evidence that the wolf was already in the herd, if only the shepherd had taken a closer look. Warnings from a range of credible institutions should have been listened to. Without going through an extensive review of predictions and threat analysis reports, three recent examples show that the current crisis should not have come as a complete surprise:

  • Epidemiologists had been warning in the 2019 Global Preparedness Monitoring Board report1 that the chances of a global pandemic were growing and the world was not prepared for a fast-moving, virulent respiratory pathogen pandemic.
  • The latest UK National Risk register2 had clearly identified pandemic influenza as one of the top high impact, high likelihood events.
  • Last October, the Center for Strategic and International Studies3 in the US organised an eerily prophetic pandemic simulation involving a coronavirus similar to Covid-19.

With these pre-existing expert scenarios, can we still call Covid-19 a black swan? Why were those warnings missed, and can we create a better spotter’s guide?

Know your swans: Black, white or grey ?

The expression was popularised by Nassim Taleb in his 2001 book, "Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets," and then fleshed out in his 2007 follow-up, "The Black Swan: The Impact of the Highly Improbable."

Taleb defines the black swan as:

  1. An event that is impossible to predict
  2. has a major effect, and
  3. seems obvious in hindsight.

A typical example is the Attacks on the Twin Towers on Sept 11th, 2001, but Taleb does also quote examples with positive effects (the internet)

This pure definition is problematic, as the prediction impossibility sets the bar really high.

  • Either we relax his definition and re-write his first condition as ‘an event that is difficult to predict’, to allow a stretch of imagination to spot some very low probability, very high impact risks. This watered-down definition recognises the difficulty to differentiate between the improbable and the impossible; and in estimating probabilities in general; and our natural propensity to dismis events with a very low probability.
  • Or we accept that most black swans spotted by people nowadays are actually “grey swans”… renowned climate modellers Lin and Emmanuel4 (2015) define grey swan tropical cyclones as high-impact storms that would not be predicted based on history , but obviously by now, especially in a world affected by climate change, we know better than look at history to predict the future. Those grey swan tropical cyclones may be foreseeable using sophisticated climate models.

The term black swan goes back to Antiquity. There is a record of the Roman poet Juvenal (2nd century AD) referring to a black swan as something presumed not to exist. In his case, he was (harshly) observing how difficult it is to find a wife with just the right set of virtues: such a woman was "a bird as rare upon the earth as a black swan."

The expression was used for centuries by Europeans who had only ever seen white swans. This changed when In 1697 Dutch explorer Willem de Valmingh landed in Western Australia and discovered black swans, which were very common for Aborigines (for them, those swans would have been “white swans”…). This lead philosophers Karl Popper and Bertrand Russell to describe as black swans the risks of declaring something impossible based only on one's limited experience.

So what other animals should you be aware of, and how do they add context to describing risk?

Other fantastic beasts and how to tame them

Dragon-kings5 (Sornette, 2009) have been pitted against black swans, with interesting insights into how these extreme, outlier events come about as a result of instabilities within complex systems: feedback, tipping points, feedback loops and other unappreciated correlations and dynamics, all nonlinear characteristics that can amplify consequence to extreme levels.

Another animal you may encounter more and more is the “grey rhino”, an expression coined by Michele Wucker in The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore. as a cross between black swans and elephants in the room.

Contrary to the low-probability black swan, the grey rhino is a high-impact, high-probability event usually ignored for various reasons. Climate change is a typical example, which until recently was discounted by investors, policy makers, corporates and citizens.

Wicker6 argues that the current pandemic is in fact a grey rhino. "Paying attention to the gray rhino would be a far better use of our time than retroactively spotting black swans."

The grey rhino theory has many attractions:

  • Rather than focusing on hindsight (black swans), it asks whether we will do something about it or not. This animal metaphor embraces the fact that many of the things that go wrong in business, in policy, and in our personal lives are actually avoidable, if only we had paid enough attention, or read that report a little more carefully.
  • It recognises that it is generally a case not of if but when.
  • Understanding how different gray rhinos are related can help prioritize action. Will addressing one rhino have unintended negative consequences? Or could it solve a host of other problems at the same time? Dealing with climate change may help deal with pollution, food instability, forced migration, water shortages etc.
  • A black swan may be hiding behind a “crash” of rhino (the technical collective term). Focusing on the rhinos is within our power, and will prepare us better for those real black swans.

So what is the moral of this zoology lesson for risk managers:

  1. 01

    Your black swan may be someone else’s white swan

    • having diverse, multi-disciplinary boards can ensure a less blinkered review of risks, especially if the culture values the input of the “Tenth Man” (or Devil’s Advocate). Boards and governments should create a seat at the table for credible experts to cry wolf at extreme but plausible risks to avoid another Covid-19 crisis.
    • unknown knowns can be resolved by asking around or research. This is a key motivation behind the research programmes in the Willis Research Network.
    • “group think” allows statements such as “impossible to predict” so review of a risk register by external advisors can be a good idea, as it can bring fresh perspectives, including learnings from other industries. This is the approach taken by our Geopolitical risk team.
    • War gaming, red-teaming are useful techniques that can be successfully imported from the battlefield to the boardroom7.
  2. 02

    The past can inform our predictions of the future, as long as we don’t neglect imagination (and modelling)

    • A good understanding of the past is useful. An extensive historical review, going back to 1000 AD underpins the taxonomy of threats behind the work of the Cambridge Centre for Risk Studies8 and their established Lloyd’s City Risk Index9. Obviously, new threats (such as drones) need to be factored in.
    • Modelling allows us to go beyond the historical record, extrapolating in a scientifically sound way. For climate change, General Circulation Models, in particular, are used to model the whole of the atmosphere and ocean system, and are key in understanding how global warming is impacting and could impact the scale, intensity and frequency of extreme events like floods10 or tropical cyclones11.
    • Scenario planning12 is a useful complementary technique to communicate the results of complex models to the public and decision makers.
  3. 03

    The real black swans (the “unknown unknowns”) remain problematic, and to prepare for them, the best strategy may be to maintain a constant state of preparedness, irrespective of the specific nature of the threat

    • Increasing our threat-agnostic resilience13 could be a good investment, allowing citizens, corporates and governments to prepare for a national crisis without knowing what exactly the contingencies will be, as outlined in this RUSI podcast series14
    • Recognising that crises should be expected rather than the exception, robust business continuity plans are a sure way of improving one’s resilience – designed properly, tested and updated regularly, they could prove versatile and make be your best insurance against the next “black swan”.15
  4. 04

    Learn to better spot those grey rhinos and how to approach them

    • They are more common than black swans
    • They promote a proactive rather than a fatalist approach to risk
    • A holistic approach to risk management and resilience is a good way of turning “grey rhino” risks into opportunities – corporates can ask their Chief Risk Officers to organise this cross-department coordination, but isn’t it telling that most governments don’t have a national Chief Risk Officer, alongside the Chief Medical Officer, the Chief Scientific Officer, the Chief Digital Information Officer etc.?






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Managing Director of Willis Research Network
Head of People Risks Research

Hélène joined Willis in 1998, specialising in natural hazard modelling and reinsurance optimisation. Since 2001, she has been leading multi-disciplinary teams, who research, design and develop analytical solutions and insights for risk identification, quantification and management. She currently leads the Willis Research Network, an award-winning public-private partnership, which harnesses over 60 science partners to form innovative long-term collaborations, improving our understanding of risks (natural hazards, technological risks, geopolitical drivers of risk) for the benefit of clients and society: using science to support resilience.
Hélène has extensive experience in spatial modelling, design of innovative solutions, and applying science to business challenges. Her current focus is on Climate advisory services (advising corporates on how leading-edge climate research can help them quantify their exposure to climate variability and climate change; exploring the links between climate change and national security) and on People Risks (how people can increase vulnerability or improve resilience: terrorism, societal resilience to systemic risks, including pandemics).
She holds a BSc in Economics & Political Science (Sciences Po), and an MSc in Environmental Economics (UCL).

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