Mid-America Catastrophe Services

COVID-19, Black Swans, And Flood Risk

 Tuesday, March 31, 2020

 Adjusting Expectations

COVID-19 has blindsided the world. We are witnessing the unimaginable—tremendous numbers of fatalities in Asia, Europe, and North America, overwhelmed healthcare systems, mass shortages of supplies, and widespread travel restrictions.

This pandemic and social fallout can be classified as a Black Swan, a rare, low-probability event that was unforeseen and will inflict severe losses on society.

The name Black Swan comes from surprised Europeans, who were astonished to find black swans in Australia in the 19th Century. They assumed black swans didn’t exist, as they had only ever seen white swans in Europe. They learned that just because they had not previously seen black swans, didn’t mean they ceased to exist.

A Black Swan is something that blindsides us because we mistakenly assumed the probability of the event was zero. When it occurs, we realize our mistake.

Clearly, if something occurs the probability is not zero… it may be a very low number but not zero. Catching us unprepared, Black Swans inflict a disproportionate amount of losses.
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