F.A.Q.

Dr. Erwann Michel-Kerjan receives many questions about catastrophes of course, but those below come up most often. These are based on over 100 public speeches and conferences he gave in recent years.

What attracted you to study catastrophe risks?

With extreme events, you never get bored. Further, you have the feeling of creating value by helping a large number of people and organizations not only protect their assets against those untoward events, but also think about new products and services that can be developed as disasters are a “growing industry,” so to speak.

We’ve had scares over hurricanes, terrorist attacks, pandemic flu, climate change and financial crises. What catastrophes are looming ahead? Viruses? Crumbling city infrastructure? Nuclear detonation? What should we do?

All of the above, and a few others…. And if one single event can have long-standing negative impacts on our lives we’d better think more about it. I suggest you ask yourself regularly: where will I be the day after the next crisis strikes?

What was the most costly catastrophe in recent years?

If you look at the past 50 years, it is Hurricane Katrina which hit the Caribbean and the United States in August 2005. Direct economic losses were over $200 billion—an historical amount. Now this catastrophe ranks second after the March 11, 2011 9.0 earthquake and tsunami in Japan (which would arguable cost nearly $1 trillion in direct and indirect economic losses).

In a recent interview you gave to Forbes, you indicated we had entered a new era of catastrophes, why?

One figure is eye-opening: Of the 25 most costly insured catastrophes in the world in the past 40 years, two-thirds have occurred since 2001. That’s scary.

Is this a sign of what the 21st century has in store for us?

Most likely. Because the concentration of population and value located in the path of future large-scale disasters is growing exponentially. In addition, changes in climate patterns are likely to lead to more extreme and repetitive climate catastrophes in the coming years. We need to act urgently to minimize losses from these catastrophes and to make countries and business more resilient to disasters. Same thing with pandemics; viruses fly business class too! So they spread very quickly. Likewise, the nature of international terrorism is changing rapidly.

Do people realize this?

Many don’t, yet. There have been many catastrophes in just the past 10 years, but still catastrophes and new crisis always take people by surprise.

Why do you think it is the case?

As human beings, we tend to overestimate the likelihood of small risks we are familiar with and underestimate the likelihood of large-scale risks. The reality is that our lives are already filled with many things we need to consider when making our decisions: our family, our job, our health, our religious beliefs, etc. Many would say that they don’t have the luxury to think about extreme events … until one happens to them, or those who depend on them.

What do you think is the likelihood that an event more devastating than Hurricane Katrina ($200 billion) happens in the next 10 years in the U.S.?

Hard to put a number on it, but I would say it is pretty high. That was my response at the World economic forum Annual meeting in Davos a few years ago. I also told the audience there, that “more devastating than Katrina” might very well come from a totally different type of catastrophes. The economic meltdown happened the following year.

How can society reduce the costs of future catastrophes?

First, by realizing these catastrophes are not low-probability events anymore. To say that catastrophes are low-probability in 2012 — after so many “unlikely” catastrophic events happened since 2000 — is a fallacy! (or a conscious lie to mislead people or to lull them into a false sense of security). I agree with the recent Time magazine cover: 00’s was “A Decade from Hell.”

You advise a number of people on these issues, from MBA students to top decision makers. What’s your advice for concerned citizens?

First, stop pretending you are safe and hoping catastrophes will not occur under your watch. You need to be proactive. The good news is that solutions exist (look at the book section in this website).
Second, with risks come opportunities (in terms of job creation, business opportunities, political election output).

How do you see the future?

Well, close your eyes for one long minute. Try to project yourself into the future and imagine a new world era where the balance between normal times and disaster times has evolved toward more of the second (well, if you can’t, think of your favorite disaster movie). Naturally, society had to adjust by reallocating time, energy and resources toward more capacity to deal with those extreme events. A growing number of top decision makers have creatively put these questions on their working agenda and have created all sorts of responses to adapt.

Now open your eyes and look around you: you did not have to imagine too much, we are already in this new era!
What are you going to do now?