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 to align with changes in the risk environment.
Willis Re executive, and fellow WillisWire blogger, Alice Underwood and I 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 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
- Managers, whose world is moderately risky, but not too risky for firms that are guided properly
Risk Cycles & Environments
As I discussed in my last post, 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.
Alice, Michael and I presented in greater detail on this topic at two conferences in Europe in 2012 and published a series of six articles about it in InsuranceERM webzine. If you’d like to learn more about it, you might be interested in reading InsuranceERM’s compilation of those reports, available here.