New approach needed to manage systemic risks, such as pandemics, climate catastrophes, financial crises
Risk and Insurance Studies Centre at York University team receives more than $11M to develop a better way to
managing risk and protect Canadians from increasing threats
TORONTO, May 18, 2023 - Controlling systemic risks from things like financial and geopolitical crises, pandemics and natural disasters is vital to protect Canadians, but as researchers at the Risk and Insurance Studies Centre (RISC) at York University researchers argue there is an acute need for a fundamental transformation in how people think about and manage that risk.
York University Professor Edward Furman and his team at RISC received more than $11 million in funding over five years through a Natural Sciences and Engineering Research Council of Canada Alliance-Mitacs Accelerate grant and contributions from partners and industry for a new program called - New Order of Risk Management (NORM): Theory and Applications in the Era of Systemic Risk.
"Risk management is key to promoting economic growth and improving welfare in Canada and in other Organization for Economic Co-operation and Development countries by taming conventional risks, but it has not had the desired results in today’s increasingly interconnected world. In fact, some call it a failure," says Furman of York’s Faculty of Science. "We hope to lead a paradigm shift around what constitutes best practices and regulation for systemic risk, one that has a broader view of what risk entails and that encompasses the complexity of its systemic nature."
Given recent socioeconomic, demographic, technological and environmental changes, the researchers say change is overdue.
Systemic risks, such as the COVID-19 pandemic and the global financial crisis which started in 2007, often spill across socioeconomic boundaries, disproportionately impacting vulnerable populations and magnifying social inequities. The pandemic has already driven Canada’s annual deficit to $348 billion and is on target to hit $1.2 trillion, while the global financial crisis resulted in a severe recession with sharp declines in national Gross Domestic Product.
Climate change is creating multiple systemic risks as sea levels rise, wildfire season becomes longer with a greater potential for catastrophic fires, and extreme weather events increase, such as flash flooding and storm surges, which can result in widespread devastation to coastal and inland communities in Canada and globally.
A better understanding of systemic risk is needed, says the NORM team, which includes York Professors Jingyi Cao of the Faculty of Science, Ida Ferrara of the Faculty of Liberal Arts and Professional Studies, Dirk Matten of the Schulich School of Business, and Shayna Rosenbaum of the Faculty of Health, as well as professors from University of British Columbia - Harry Joe (Statistics); University of Toronto - Sheldon Lin (Actuarial Science) and Silvana Pesenti (Risk Management); University of Waterloo - Fan Yang (Actuarial Science); and Western University - Ricardas Zitikis (Statistics).
With their industrial collaborators, the NORM team will develop novel theories, operational tools, and regulatory mechanisms to address the increasing systemic nature of risks, while also accounting for unequal susceptibility to systemic risk, pursue equity and build resilience.
"NORM’s impacts mean not only an academic breakthrough in how we conceptualize systemic risk, but also fundamental transformations in how we manage and govern this new type of risk more effectively through strategies that reflect and consider equity and vulnerability," says Furman.
Systemic risk is a global threat. NORM brings exceptional depth and breadth of relevant scholarly expertise from actuarial mathematics, business, economics, psychology, and statistics together with industry collaborators, including Sun Life Financial, Canada Life, CANNEX Financial Exchanges, Aviva Canada, and Wawanesa Insurance, to tackles the issues.
