In the SATIB webinar last month, Natalia Rosa (MD of Big Ambitions), asked why unexpected, catastrophic and impossible-to-predict events were named after a bird as beautiful as the black swan.
Legend has it that before a team of Dutch explorers encountered black swans on the west coast of Australia back in 1697, Europeans had only ever seen white swans. In other words, the very existence of black swans was impossible to believe – or predict.
So in insurance terms, what qualifies as a black swan? According to writer Nassim Nicholas Taleb, a Black Swan event is one that meets all three of these criteria:
- An outlier, fully outside the realm of regular expectations, truly unprecedented;
- Extreme in its impact; and
- Rationalised in hindsight or otherwise deemed ‘predictable’ but only after the fact.
Cue instant debate over whether COVID-19 was a ‘black swan’ or not. Yes, to points two and three, but was it really outside of the realm of regular expectations? After all, back in 2014 Barack Obama warned the world about ‘a new strain of flu, like the Spanish flu’. But (and it’s a big one) could we really have anticipated the global reaction? The hard lockdowns? And in South Africa, the alcohol bans, tobacco bans and nature (sometimes ludicrous) of our restrictions? I doubt it.
It's a murky area. So much so, that we have another swan in the mix. The term ‘grey swan’ is now used to describe a significant event whose possible occurrence might be predicted beforehand, but its probability is still considered small to remote.
It’s all semantics though, isn’t it? Just because white swan events are easier to predict (like the recent floods in KZN), they are no less devastating.
The biggest take-out from our black swan, grey swan, white swan debate (and I agree with Natalia that swans are far too graceful; had the Dutch ever seen a hadeda?), is that you have to prepare where you can.
Insurers (and their reinsurers) are faced with more risk than ever before and, after a series of both global and local events (like the July 2021 riots in KZN), they are feeling the pressure. One of the biggest changes we have seen – and perhaps the most concerning for the tourism industry – is to Business Interruption cover. Today, ‘non-damage events’ (where losses have resulted from a cause besides physical damage such as a fire, flood or storm) are not covered by BI insurance. This means, if volcanic ash from an eruption in Iceland shuts down international flights for a week, you won’t be able to claim for business lost.
Importantly, you can claim for damages/loss incurred from a number of different crises we face today, including seasonal issues (like veld fires, hail damage and the like), natural disasters, crime, and cyberattacks.
Sit with your broker and discuss your needs; identify your risks (both potential risks and those experienced in the past), because the better you are able to identify and mitigate your risk, the less vulnerable you will be. They’ll also be able to update you on any changes in the insurance landscape (including the latest in BI insurance and SA’s Sasria updates) so you know exactly where you stand if you are ever faced with a swan event. Black, grey or white.