Views on Risk: Pre & Post Pandemic by Brian Etherington

Mindset story: The tightrope story about walking the walk

History has taught us unsurprisingly that the farther away in time we are from a tragedy the more our collective memory fades of it’s consequences. This condition of course is exacerbated when we are facing something that we have never faced before.

As written by Laurence Mussio in his article in the Globe & Mail on September 14th, 2020 entitled: “How The Pandemic Is Changing Views On Global Risk”, the Covid-19 pandemic of 2020 has brought with it three sets of consequences: #1/ as a destroyer of lives and livelihoods #2/ as a divider, crystallizing inequality and generating tensions and #3/ as a great revealer, exposing societal over-reliance on Big Data ( up until the early 20th Century bankers relied on personal and professional networks to assess the 3C’s of banking credit: character, capacity and capital of the borrower. In the post war decades risk management became more systematic and model driven and recently even more transformed by Big Tech and Big Data as it became increasingly dependent on fully automated risk adjudication).

But similar to the Chernobyl nuclear disaster of 1986 which caused a rethink of how to manage consequences of man made environmental disasters and the Great Recession of 2008 which caused a reassessment of the deep trust between individuals and financial systems, the tragic trust, health, and economic shocks of the 2020 pandemic have exposed the fact that In spite of our risk models, previous experience and incredible technology – no one saw this coming. How should financial institutions and individuals prepare for the next crisis?

The basic challenge  is to engineer a scenario whereby aggregate losses from any one risk do not exceed the maximum tolerable loss. Data has a lot to do with it; but human judgement is required to assess both the probability of the risk and whether the level of risk is acceptable.

Translation? Human judgement must reclaim a prominent role in any risk assessment; realizing that strong capital and liquidity positions are the first and strongest defences alongside the ability to respond quickly to any financial risk, all of which should be backed up by strong financial risk assessment tools.

Observation? For over 50 years Etherington Generations has been working with its clients to address these four risk assessment, protection and management defences in both their corporate and familial lives. As it was 50 years ago – so it is now ….our ability to earn an income can only be interrupted by retirement (early or late); disability, accident or death. Given all that we are going through in 2020 it might just be time for you to reassess the acceptable degree of financial risk for your business and your Family in the event of any one of those scenarios.