The financial services industry could learn lessons from the plight of Chilean salmon farmers or US wildfire management, a report backed by senior bank and insurance executives said Friday.
The World Economic Forum report pointed to Chile’s experience in 2007 after a viral disease virtually wiped out the country’s salmon farms — among the world’s biggest — as an example of how the financial industry could manage risk.
Others included the World Health Organisation’s global flu alert scale, the aviation industry’s surveillance and action on incident data like near accidents, or medicines testing to root out side effects. “Our goal is to provide food for thought rather than an off-the-shelf solution,” said Axel Lehmann, chief risk officer at Swiss insurer Zurich Financial Services, in a statement.
“There are vital lessons to learn from these findings, particularly the ones that deviate from the conventional wisdom proffered in our industry,” added Lehmann, one of the heads of the steering committee guiding the report. The report argued that most of the ideas to improve or reform financial risk management in the wake of the collapse of big banks and the slump had come from inside the industry.
Yet, many other areas of human activity or business have developed “sound practices and successful patterns” to deal with the risks they confront, sometimes after things went destructively wrong, it added. In Chile, the salmon were found to be in densely packed farms, dependent on intensive treatment with similar antibiotics, subject to similar preventive measures and as a result all vulnerable to a single contagious threat.
The report drew a parallel with the presence of similar business and risk management strategies before the financial crisis. As a result, most financial firms rushed “for the same exit door” when the US sub-prime housing bubble burst and also failed to detect the patterns of a broader systemic failure. Instead the financial services industry should “foster diversity in order to make the system more resilient” and avoid the “emotional comfort” of acting like a herd.
Geneva, April 16, 2010 (AFP)
