“Black Swan” risk management at the extreme

The recent credit problem suggests that managers have to be better prepared for the unanticipated. The problem of the “Black Swan” Just because I have not counted or seen an event does not mean that it will not occur. Nevertheless, this can be taken to an extreme. The London story talks about race organizers taking out Loch Ness monster insurance. This could be the Black Swan of Scotland, but it also raises the point of what level of risk protection is necessary. Risk is everywhere, but should you pay someone to take all of those risks away?

LONDON (AFP) - Organisers of a duathlon in Scotland have taken out a one-million-pound (1.46-million-euro, 1.97-million-dollar) insurance policy against attack by or sighting of the fabled Loch Ness monster. Transport operator FirstGroup said in a statement that its policy with insurers Royal and Sun Alliance would pay out should "Nessie" emerge from the murky depths of the vast watercourse and/or attack one of the competitors. First Monster Duathlon race director Malcolm Sutherland said they were planning for all eventualities. Jon Woodman, trading director at R and SA said: "This is one of our more unusual requests but it certainly gave our team something to get their teeth into."

Any "proven sighting" has to be independently verified, subject to policy terms and conditions, the insurer said