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How Businesses Should Address Risks Now

With the coronavirus, businesses big and small obviously are dealing with risks from a crisis unlike any they’ve ever had to manage. But can some answers into business behavior be gained from other natural disasters?

As we’ve reported, few think about the mechanics, consequences and business of insurance more than Howard Kunreuther. He is Professor of Decision Sciences and Business and Public Policy at the Wharton School, as well as co-director of the Wharton Risk Management and Decision Processes Center. As context: “The Wharton Risk Management and Decision Processes Center, established in 1985, is a research center affiliated with the Wharton School at the University of Pennsylvania. Engaging students and faculty throughout the University in collaborations, research projects, and other partnerships, the Center is recognized worldwide as a leader in risk-related research and policy analysis.”

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Kunreuther has served as a member of the World Economic Forum’s Global Agenda Council and written numerous papers and books – including the landmark “Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry” – on his long-standing interest in ways that society can better manage low-probability, high-consequence events related to technological and natural hazards.

Kunreuther recently discussed the decision-making obstacles that cause people and businesses to underprepared for disasters in a FEMA PrepTalk. He addressed “the processes and biases in decision-making under uncertainty. He also proposes a behavioral risk audit that couples protective decision-making with economic incentives, enabling individual and collective actions to achieve greater resilience.”

Kunreuther spoke further on the topic in a video here.

Indeed, even as the economic crisis was less intense than it currently appears, Kunreuther told the Leader (New Zealand) about business leaders: “I don’t think they would be paying attention [to the coronavirus] if it weren’t in the news every day. The question is, will they undertake an assessment of the risk and ask what kind of risk-management strategies they can follow by examining the potential costs and benefits of undertaking these steps?”

Added Kunreuther: “Every one of them said we are now paying much closer attention to the potential consequences of catastrophic risks than in previous years because they are happening more frequently: the 9/11 terrorist attacks, the 2008-2009 financial crisis, the 2011 Japan trifecta (earthquake, tsunami and nuclear accident) and more intense natural disasters. Firms are now engaging in enterprise risk management to reduce the likelihood and consequences of future adverse events that will affect their operations.”

The Brexit Effect on Business Risk?

But are some businesses better situated than others? And, strangely, because of Brexit, could UK businesses be better prepared for oncoming challenges? That what The National Law Journal argues.

It states: “UK businesses are arguably be better placed to deal with the economic pressure that Covid-19 could bring having already had to consider how to prepare for a ‘worst case’ in the lead up to Brexit. Many will have already considered whether there are alternative suppliers in the event of supply chain issues, have considered and stockpiled raw materials/goods and having done so are in a good place to move quickly if restrictions in the UK are enforced. Many will have considered the impact of material disruption to their workforce in considering the immigration impact of a no-deal Brexit.”