Rational Adaptability is needed for risk management success
There is no single approach to risk management that will work for all risks nor, for any one risk, is there any one approach to risk management that will work for all times. Rational Adaptability is the strategy of altering your approach to risk management with the changes in the risk environment.
Willis Re execs Dave Ingram and Alice Underwood have teamed with anthropologist Michael Thompson to produce a series of articles that discuss the four risk environments and four risk management strategies that are linked to four risk attitudes that are adapted from anthropology work from the 1980’s.
The four risk attitudes are: Pragmatists, who believe that the world is uncertain and unpredictable; Conservators, whose world belief is of peril and high risk; Maximizers, who see the world as low-risk and fundamentally self-correcting; and Managers, whose world is moderately risky, but not too risky for firms that are guided properly.
We have been living through an Uncertain risk environment where the optimal risk management strategy is Diversification of risks. The height of the Financial Crisis was, of course, a Bust risk environment where the optimal strategy was Loss Controlling. Prior to the crisis, some sectors were experiencing a Boom risk environment where Risk Trading was the best strategy. And the long Moderate environment that preceded the boom for many years resulted in many companies adopting a Risk Steering strategy to optimize risk and reward.
These ideas were presented by Alice, Dave and Mike at two conferences in Europe in 2012 and published as a series of six articles on the InsuranceERM webzine. Those six articles have been compiled into a single report by InsuranceERM that is now available from their website.
This is just the latest in a long series of work on this topic (and the most comprehensive to date). Please see https://riskviews.wordpress.com/plural-rationalities/ for a comprehensive look at this work over the past several years.