Chapter 16: Rising from the Ashes: A Governance Perspective on Emerging Systemic Risks
Giuliano G. Castellano 16.1 INTRODUCTION Unpredictable events – like an infrastructure failure such as a blackout (e.g. the 1999 southern Brazil blackout or the northeast blackout of 2003 that occurred in the US and Canada), a large-scale ﬁnancial crisis with deep consequences on the real economy (e.g. the Icelandic and the Greek crises), a non-conventional terrorist attack (committed with chemical, biological, radiological, nuclear weapons), the risk related to the exploitation of new technologies (typically nanotechnologies), or a geophysical event (as the 2010 volcanic ash crisis or the 2011 Japan earthquake) – may suddenly cause large-scale losses. The knock-on effect of these events grows beyond the direct social and economic impact on a speciﬁc geographic area, affecting simultaneously different regions and imposing immediate regulatory answers. The chapter addresses those risks here deﬁned as ‘emerging’, since they lack previous records but are expected to increase in frequency and impact. The main feature of this ‘line of risk’ – to use the insurers’ terminology – is the lack of sufﬁcient knowledge. By showing that this feature also characterizes the 2010 volcanic ash crisis – which may be considered an unexpected infrastructure failure – this chapter attempts to identify the core policy issues to be addressed through a risk-based governance model that stimulates preventive strategies and minimizes losses. Such an approach requires both public actions and private sector’s interventions (typically the insurance and reinsurance industries) to absorb large-scale losses. The ex ante perspective here presented is opposed to the ex post, centralized ‘zero-risk approach’ adopted to manage...
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