Food security on the menu as catastrophe expert examines appetite for emerging risks

Where some people see swans, the chief operating officer of Aon Benfield Analytics Asia Pacific, Rade Musulin (pictured), sees pears. Or pear shapes, to be precise.

Speaking to StrategicRISK prior to his presentation on food security at the Aon Benfield Hazards Conference, being held in Australia today, Musulin said that what he called “pear-shaped phenomena” seemed to be occurring with increasing regularity. “Some people call them black swans, which we think is a misnomer for some of these because they are often foreseeable,” he said.

A black swan event is a highly improbable occurrence that is impossible to predict, carries a massive impact and has stunning shock value. However, Musulin believes that warning signs exist for the risks being outlined at the conference. “We’re trying to examine the emergence of these risks and see if we can help understand the conditions which lead to these types of risks,” he said. “What we’re looking at is basically the intersection of perils like earthquakes or cyclones and the complicated society we have now, and the various ways in which risks can emerge from these systems in ways that are outside the box of the traditional risks.”

Musulin said that food-security problems are examples of pear-shaped phenomena. “We’re using food security as an illustration of the various ways that complicated supply chains can be affected by seemingly innocuous actions,” he said. “These can magnify and have very significant economic effects that ultimately feed into the insurance system.”

Real-world examples
Musulin’s presentation combines issues relating to bees, bugs and bread to illustrate the vulnerability of complex supply chains. First up, there’s colony collapse disorder, which has wiped out millions of beehives across the world in recent years. “For various reasons, perhaps pesticides perhaps other things, you’ve got a massive problem with colony collapse and bee die-offs; it’s a bit under the radar but has potentially huge implications,” Musulin said. “Very few people think about the role bees play in the food chain, [but] a huge proportion of the crops that we eat require pollination.”

Then there’s the issue of antibiotic use in animal husbandry. “That potentially could be a breeding ground for antibiotic-resistant bugs,” Musulin said. “There’s definitely a problem with antibiotic-resistant germs and the potential that could have for a pandemic.”

Lastly, Musulin considers the relationship between political unrest and food crises. “There’s a large body of somewhat circumstantial evidence that the Russian wheat harvest problem several years ago, coupled with significant rises in the price of wheat, contributed to some of the political unrest in the Middle East,” he said. “I’m personally convinced that there’s quite a bit of truth to that. If you look at the proportion of income that many of the lower classes or non-elites in these countries spend on food and bread, if the price of bread doubles that’s a serious budget problem for people.”

Domino effect
These sorts of large shocks to economic systems also affect the insurance system, Musulin explained. “If you knock off one link in the chain, there are all these consequences down the road,” he said. “There are certainly insurance implications of this on agriculture, life and health, and property insurance, as well as product liability and business interruption.” Indirect effects might also include currency volatility and inflation, he added.

Musulin is taking part in a panel discussion at the conference focusing on low-probability, high-consequence events. Other participants include Aon Benfield’s global chief executive analytics, Stephen Mildenhall, APAC chief executive, Malcolm Steingold, and head of broking, technical and placement, John Carroll.

“What we’re trying to do in our conference is not fear monger, but illustrate how each of these problems involves a very complex domino effect where there are many consequences down the road,” Musulin said. “So if you train yourself to look for these types of problems, you may have a better chance of identifying the types of future risks that all the businesses at the conference face.”