Hoax exposed - one less risk

It has just come to light that a painful condition called " cello scrotum" that was supposed to affect male cellists and which was written up in the British Medical Journal in 1974 was a hoax. The author was Dr, now Baroness, Elaine Murphy who did it as a riposte to what she saw as another spoof medical condition " guitar nipple" which had been reported in the BMJ.

It is only recently when she saw that the condition was being referenced by other researchers that she decided to come clean. At least one risk manager I know used to show a photograph of a cellist in his presentations and ask his audience to identify the risk.

So there's one risk that risk managers of orchestras will be able to discount. Did male cellists take out insurance cover and if so were there any claims? Were any dissuaded from taking up the instrument and have the sales of cellos been depressed as a result? What other diseases are spoofs? The mind boggles.

High Impact, low probability risk

For more than 10 years the Council of the Association of Insurance and Risk Managers ( AIRMIC) have insisted that their reserves be placed with three separate banks, despite their lead bank offering significantly better interest rates. An example of risk managing for what, for the last ten years, would have been seen as a high impact but low probability risk.

Who decides on the risk?

A Chief Executive and his Chief Financial Officer, faced with a deteriorating situation in their markets, decide on a drastic course of action, supported by their banker.

Under their governance rules they submit their plan to the risk management committees. The first risk management commitee, having talked through the proposals with the stakeholders refuses to support the plan, which almost causes an apoplectic fit from the Chief Financial Officer who is not used to such detailed risk management consideration of his proposals.

The second risk management committee, composed somewhat differently, then refines the plan, adds some additional controls and benefits and confirms their agreement with it.

It then remains for the first risk management committee to decide whether their concerns and those of the stakeholders have been sufficiently addressed.

Is this a model for future corporate governance and for putting the risk manager right in the centre of the risk management process at the point of the decision?

A week is a long time in the markets

Stelios Haji-Iannou remarked that " If you think risk management is expensive, try an accident".

Last week we started to count the cost of not having sufficent risk management is place in the derivatives' market. There is one estimate that this market is 11 times the value of the global GDP . No one knows how long or how painful it will be to extract the leverage out of that market or what the shape of the global financial industry will look like when it is finished.

Warren Buffet told us that derivatives were "weapons of mass destruction" back in 2002 when he reported on what he found when he unravelled General Re's derivative book. No one else comes close as a risk manager in the insurance business.

The Great Pandemic and the young

90 years ago this month 12,000 died of influenza in the USA. In October a further 195,000 died. American life expectancy dropped in 1918 by 12 years. Eventually 600,000 American citizien would die of the disease which singled out the young and fit and turned their immune systems against them. The estimates for world fatalities runs from 20-50 million. The truth is we just do not know how many and find it difficult to disentangle the effects of World War 1 with those of the pandemic.

Those authorities which swiftly recognised the nature of what they were dealing with, stemmed the mortality rate by limiting movement, by reducing contact between people and by promotingthe use of masks.

Others, such as the US army which had 13 million men register for the draft in September 1918, unwittingly exacerbated its effects.

Risk Managers should study the history of this great pandemic - if it was to occur again we would need to understand what did or didn't work in 1918, plus how we have moved on since those days, especially in terms of mobility and communication.

Young people take their health for granted, they think such a death couldn't happen to them. Sadly it did for my maternal grandmother in 1919, she was only 30 when she died of influenza leaving behind my mother , then a seven month old baby.

Chance hardly affects the wise

"Chance hardly affects the wise; the really important and serious things are under control of their own deliberation and reason. No more pleasure could be derived from a lifetime of infinite span than from a life we know to be finite."

Cicero quotes ,with approval this remark of Epicurus , translated by Rapahel Woolf. Seems to me to be what all risk managers might aspire to.

However on the subject of the infinite Richard Donkin in Thursday's FT pointed out that Einstein once remarked "Two things are infinite: the universe and human stupidity: and I'm not so sure about the universe."