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The Rough Notes Company Inc.



November 30
09:01 2020

Risk Management



Better before than after

The fall of 2019 in the Midwest seemed like any other: kids back in school, football, raking leaves, tuning up the snow blower for winter. But little did we know trouble was just a half-world away—in a city in China no one had ever heard of.

There was no inkling that a full-blown pandemic named COVID-19 would lay waste to our way of life by March of 2020, and all hell would break loose.

Life as we knew it changed. Lockdowns, unemployment, PPP loans, infection spread, social distancing, masks, quarantines, testing, contact tracing, deaths, vaccines, and Zoom meetings became part of our everyday reality. We are experiencing an emerging risk first-hand. Most individuals and businesses were unprepared, while others had their pandemic disaster plans ready as they went beyond the traditional insurance process of just focusing on known risk and were better prepared.

The National Alliance for Insurance Education & Research describes emerging risks as new exposures to loss that have not had a risk treatment implemented, are challenging to quantify, and may have a significant financial impact on an organization. Common elements to look for in an emerging risk include high uncertainty, making it difficult to predict the exposure’s frequency or severity. These risks are difficult to quantify, so they are hard to forecast, transfer, or finance. They are a challenge to communicate, creating a concern of a phantom risk by “crying wolf.”

Be the visionary by thinking about and planning for the future with imagination and wisdom.

Regulatory involvement is brought on by a lack of industry response. The Terrorism Risk Insurance Act (TRIA) was passed by Congress in 2002 after the terrorist attacks of September 11.

Be on the lookout for factors that affect the speed of emerging risks, such as technological advances and science. An example would be a driver-assisted car like a Tesla hitting a pedestrian in a crosswalk or a driver-assisted vehicle hitting the side of a semi-trailer broadside at 70 mph because it blended into the snowy white background.

Also, consider the availability of financing and interest rates. You don’t need to look much further than a building industry slowdown that comes with increasing rates.

A social change, like the “deep pocket” philosophy from a jury pool’s shifting demographics, causes verdicts of over $10 million, could have a big impact on the trucking industry.

The emerging risk may be financial, such as a rise in interest rates and inflation. It is hard to believe that mortgage interest rates were 18% when my wife and I bought our home in 1982. Ouch! They are at an all-time low now, and no one knows when they will rise.

Another emerging risk is a natural disaster like Hurricane Katrina hitting New Orleans or the 1958 tsunami in Alaska that recorded a 100-foot wave, causing the highest run-up against a hillside in recorded history, a height measuring 1,722 feet (by comparison, One World Trade Center in New York is 1,776 feet). A more recent example is the fires that are devastating western states this year.

Social media disaster lurks behind every corner of the internet. While it is a valuable network of information, it can quickly transform into a dangerous battlefield. Cybersecurity experts believe disaster is just around the corner, especially because of the rise of internet use and our reliance on it.

Pandemic illness has been part of humanity’s history and will be in the future. The 1918 Spanish flu pandemic was recorded as the most severe in recent history. An estimated 500 million people, or a third of the world’s population, became infected, and 50 million people died worldwide, with about 675,000 deaths occurring in the United States. We also had Asian flu (1956-1958) that killed 2 million, the Hong Kong flu pandemic (1968) causing 1 million deaths, and HIV/AIDS (at its peak 2005-2012) that has killed an estimated 36 million worldwide. And now COVID-19 has killed more than 1.3 million worldwide as of mid-November.

Dependence on technology makes us vulnerable as the electric grid in the United States faces significant cybersecurity risks because bad people are becoming increasingly capable of carrying out crippling attacks. Nations, criminal groups, and terrorists pose the most significant cyber threats to our country’s critical infrastructure. According to a United States Homeland Security warning in December 2019: “We believe the clock is ticking down to a cyber 9/11.”

Human beings need food and water to survive. A person may go without food for about three weeks but would typically last only three to four days without water. A disruption in the availability of fresh water is devastating; just ask the people of Uganda where it’s estimated that 70% of all diseases are connected to lack of clean water or poor sanitation.

Global warming or chilling is always at the forefront of today’s news. According to a study by NASA, scientists are confident that global temperatures will continue to rise, primarily due to greenhouse gases produced by human activities. However, experts who assess climate change risks often reach very different conclusions.

Rising medical costs and obesity-related medical conditions are in abundance. Research at the Centers for Disease Control & Prevention (CDC) shows that obesity is associated with poorer mental health outcomes and reduced quality of life. Obesity is also associated with the leading causes of death in the United States and worldwide, including diabetes, heart disease, stroke, and cancer. CDC said obesity-related medical care costs in the United States in 2008 were an estimated $147.15 billion, and annual nationwide productivity costs of obesity-related absenteeism ranged between $3.38 billion ($79 per obese individual) and $6.38 billion ($132 per individual with obesity).

Terrorism and political risk always are lurking in the background. The term “terrorism” refers to intentional, criminal, malicious acts. It can be foreign or domestic. It can be an armed attack, arson, biological or chemical, bomb, hazardous material release or nuclear device. The horrific attack on 9/11 would fall into this category of risk. Political risk could be war or civil unrest or trade losses from embargos and trade-disrupting sanctions. Ask the merchants on Chicago’s Miracle Mile if civil unrest has affected tourism and their income.

Because emerging risks are uncertain, as risk advisors we need to get the business community thinking about and planning for these risks and how to treat them. This will provide them a framework to go beyond the traditional insurance process of just bidding and quoting. Be the visionary by thinking about and planning for the future with imagination and wisdom. Your client will appreciate it and be better prepared when an emerging risk comes out of nowhere.

The author

Randy Boss is a Certified Risk Architect at Ottawa Kent in Jenison, Michigan. As a Risk Architect, he designs, builds and implements risk management and insurance plans for middle market companies in the areas of safety, work comp, human resources, property/casualty and benefits. He has over 40 years’ experience and has been at Ottawa Kent for 38 years. He is the co-founder of, web apps for insurance agents to share with employers. Randy can be reached at

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