Four Seasons of Risk

In reaction to the continuing financial crisis, many firms are starting new risk management programmes. They often begin by defining the word “risk.” What follows is usually generic and usually almost totally useless. In some technical sense, there is risk out there in all directions. But is any of that risk really RISKY? Is any of it actually DANGEROUS?

There are times when situations are low risk, times when they are high risk and times when they are absolutely dangerous. Risk management needs to be designed to recognize the different situations and to act accordingly.

The most important skill becomes outward- and forward-looking to understand where the environment is and where it is moving. Previously, much of risk management attention has been directed inwardly towards evaluation of existing risks and looking backwards to historical experience to do that.

The role of risk management needs to shift to identifying major changes in the environment.  In addition to preparing reports looking inwards about the risks of the firm, the risk managers will be regularly reporting on the ability of the firm to withstand the changing environment.

An excerpt from Insurance Risk and Capital where the four seasons are explained.

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Explore posts in the same categories: Enterprise Risk Management, ERM, Financial Crisis, Risk, Risk Management

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One Comment on “Four Seasons of Risk”

  1. riskviews Says:

    Another version of this story has been published in The Actuary. http://soa.org/library/newsletters/the-actuary-magazine/2009/december/act-2009-vol6-iss6.pdf


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