The “black swan” theory on natural catastrophes and other crises that cannot be predicted no longer holds sway, according to Munich Re Chairman Nikolaus von Bomhard.

“The term is all too often misused to distract from bad risk management, and thus also from an incorrect assessment of probabilities,” Dr von Bomhard said. “The more unlikely an event is supposed to be, the greater the hoped-for understanding for the lack of precautions.

“My argument is that the supposed unpredictability of events all too often serves as an excuse for the lack of risk management. In this way, human error becomes force majeure, recklessness becomes bad luck and irresponsibility becomes fate.”

Events deemed unthinkable or “100-year” calamities have happened all too regularly, and such scenarios should be included in risk analysis, he says.

Such events include the 2007/08 global financial crisis, the eurozone debt crisis, the 2011 Fukushima nuclear plant accident and global warming.

“What’s needed is an honest and realistic assessment of probability and the impact of possible but also quite rare events,” Dr von Bomhard said. “In particular, events with potentially major impacts should not be ignored in the risk analysis simply because their probability of occurrence is essentially difficult to determine, or is relatively low.

“Difficulties with estimating the probability of occurrence, the impact of events and options for action should not be an excuse for not dealing with a risk.”

Dr von Bomhard says assessments must be made, even on risks with little historical data or information, such as the impact of disruptive technologies.

“In evaluating such uncertainties, we must rely primarily on the assessment of experts and to some extent also on ‘gut feeling’.

“Common sense is capable of amazing feats when it comes to risk assessment. It also makes a lot of sense to take account of psychological insights into judgement and decision-making when carrying out risk analysis on risks that are hard to quantify.”