Making a market for acts of God

How is the damage of major global disasters paid for? And who by? Dr Rebecca Bednarek, Senior Lecturer in Management at Birkbeck, explores this in new book Making a Market for Acts of God, now available from Oxford University Press. 

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Catastrophic events appear to be increasing in both frequency and severity globally. The financial cost of their losses can be sudden and huge – but who pays the insurance bill for such massive events? Who paid for Hurricane Katrina, or 9/11, or the 2011 Tohuku earthquake?

It all comes from the ‘Reinsurance’ industry – a financial market that trades in the risk of major disasters. This means reinsurance is a crucial social and economic safety net that helps to mitigate some of the effects of disasters, both financially and in terms of allowing for a swifter rebuilding of people’s day-to-day lives following destruction or damage. Dr Rebecca Bednarek, Senior Lecturer in Management at Birkbeck uncovers the everyday realities of the reinsurance market in her book, Making a Market for Acts of God, co-authored with Professor Paula Jarzabiwski and Dr Paul Spee. They get to the bottom of how the risk of such disasters can be calculated and traded in a global market.

rebecca-bednarek_photoIn a recent interview for BBC Radio 4’s programme Thinking Allowed, Bednarek explains: ‘In the reinsurance industry, the increase and frequency of weather related events are put in the context of climate change. In addition, what is also happening is increased urbanisation; as cities get bigger, the losses and expenses of these events become more expensive, as more people are insured in localised settings.’ Further, increasingly, a natural disaster in one country could affect significant losses to supply chains in businesses around the world, and it is against this backdrop of increased globalisation that we must attach more significance to understanding the market of reinsurance.

The sheer scale of the claims means risk must be spread further in order to mitigate its effects – the attacks on the World Trade Centre in 2001 insured losses of $35.5 billion, for example, and for Hurricane Katrina in 2005 the payout was $46 billion. But as Bednarek says: ‘It’s not just the scale of this loss, it’s the fact that you couldn’t predict them. The reason reinsurers are able to themselves survive and to weather such large claims is because for each individual insurance deal, multiple reinsurers take a small part of this deal. No one reinsurer is exposed themselves to a single risk.’ The book also explains how long-term trust-based relationships between insurers and reinsurers are crucial to enabling and stabilising capital flows before and following these large-scale events. These relationships also enable reinsurers to build up deep contextual knowledge of specific risks; something which remains crucial in informing their judgement about risk even as they also use highly technical vendor models and actuarial techniques.

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Bednarek and her co-authors shadowed underwriters from various different countries for over three years, gathering ethnographic observations from reinsurers in Bermuda, Lloyd’s of London, Continental Europe and South East Asia, studying their trading activities across many disaster situations.

There may be some developments in the reinsurance industry which could cause future problems, however. Bednarek says: ‘What we found was a whole milieu of long-standing social practices that had ensured that this industry had worked’ and provided capital to underpin large scale catastrophes for centuries. However towards the end of their period of engagement, the researchers began to observe ‘a period of rapid change; things like collatorised forms of finance, different kinds of deals that were changing the industry in certain ways. We wonder what these changes might do to some of these long existing practices that we identified as integral to this market and how it works.’

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What’s in a face? Birkbeck researchers delve into what facial expressions reveal

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Birkbeck scientists in residence at the Science Museum have recently run a live experiment with members of the public, to discover how much we understand about people simply by looking at their faces. Two members of the team report on their experiences.  

Ines Mares, postdoctoral research assistant in the Department of Psychological Sciences: As humans, we possess the remarkable ability to extract a wealth of information from even a brief glance at a face: we can identify people, judge the emotion they are feeling, assign character traits (rightly or wrongly), and in doing so, continue to thrive as a social species. Because faces are so interesting and processing them well is so important to us as humans, they made an ideal topic to explore in the context of the Science Museum’s ‘Live Science’ initiative.

In the Science Museum we ran a series of experiments to understand what factors make faces more rewarding or appealing – such as how attractive they were, the emotions they were displaying or how old the faces were. We were especially interested to see how these judgements related to our ability to recognise faces, and to see how our results would change for younger and older participants (our experiments tested children from five years of age to adults of almost 90!).

Dr Ines Mares explains the experiment to a participant.

Dr Ines Mares explains the experiment to a participant. 

“This was a great opportunity for us to engage directly with people and discuss the type of research we do and the questions that motivate us. It is also a unique chance to reach out and test a much more diverse set of people than we are conventionally able to do, with anyone aged from five to 105 invited to take part in our studies.”

Dr Marie Smith, Senior Lecturer, Lead Scientist with Dr Louise Ewing (UEA) and Professor Anne Richards (Birkbeck)

Conducting this type of study, in which we focused so closely on individual differences with such a broad audience was outstanding.  It was a unique opportunity to interact with people from very different backgrounds and ages – something that can be challenging to do in the university labs.

To begin with, we were concerned about people’s willingness to take part in our experiments, but after the first day at the museum we understood that people were interested in being involved and actually wanted to know more about our hypothesis and what motivated us to do this type of work. It was an amazing chance to discuss these topics with members of the public and get feedback on our work directly from them. Initially this idea seemed quite daunting to me, but I ended up loving it, since the majority of people who took part in our experiments (and we had almost 2500 participants) were really motivated and interested to know more – not only about face processing, but also about other aspects of science in general.

Being part of a team running experiments in the Science Museum was an amazing opportunity.  Without a doubt, I would repeat this experience, not only because of the amazing breadth of data we were able to collect, but also because of the opportunity it gave us as researchers to disseminate our work and discuss science in general.

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Professor Anne Richards explains the purpose of our study to an interested volunteer. 

Michael Papasavva, PhD student in the Department of Psychological SciencesEven when working in a hub-science such as psychology, lab life can become monotonous. Surrounded by friends and colleagues who share similar views and challenges, it’s very easy to lose yourself in the bubble of academia.

Michael Papasavva signs up another keen volunteer!

Michael Papasavva signs up another keen volunteer! 

I was thrilled when presented with the opportunity to get out of the lab and be a scientist in residence at the London Science Museum. This prospect invoked childhood memories of navigating this huge and stimulating environment on school trips and family days out; I knew that the experience was going to be awesome (in the nerdiest way possible).

Working as part of a team of 12 researchers, we ran experiments in the ‘Who Am I? Gallery.’ This is perhaps one of the more interesting areas of the museum; the space houses visiting scientists from various disciplines and facilitates their research. Members of the public are free to wander over and volunteer to participate in experiments (or query the location of the toilets or dinosaurs). Our team conducted a range of different face processing experiments that examined the role of development and individual difference on face memory and emotion processing. By the end of the residency, almost 2500 people had participated (832 children, 1487 adults), creating masses of data for us to explore once we were back in the lab.

In addition to generating novel information, it’s the responsibility of a scientist to disseminate that knowledge to the wider public. Our residency provided us with an opportunity to engage with a very wide demographic. I must admit, it was heart-warming to see our younger participants having so much fun with the masks and games we had set up to help draw in the crowds and that so many of our  older participants chose to stay back to discuss our project with us. People genuinely enjoyed giving back to science.

I would strongly recommend the Live Science project.

Photo credits: Science Museum Group Collection

The full science museum team: Dr Marie Smith (Senior Lecturer, Birkbeck), Professor Anne Richards (Birkbeck), Dr Louise Ewing (Lecturer, University of East Anglia), Dr Ines Mares (Post-doc, Birkbeck), Michael Papasavva (PhD Student, Birkbeck), Alex Hartigan (PhD Student, Birkbeck), Gurmukh Panesar (PhD Student, Birkbeck), Laura Lennuyeux-Comnene (RA, Birkbeck), Michaela Rae (RA, Goldsmiths College), Kathryn Bates (MSc student, Birkbeck), Susan Scrimgeour (MSc student, Birkbeck), Jay White (Intern, UCL Institute of Education).

Further information:

The use and over-use of prison around the world

Catherine Heard, Director of ICPR’s World Prison Research Programme, writes on a new report looking at disparities in prison use in ten countries, across five continents.

prison-report-launchMarch 16th saw the launch of our new report, Prison: Evidence of its use and over-use from around the world.

Over 40 guests came to the launch (kindly hosted by the law firm Clifford Chance) to hear about the report’s highlights and watch presentations by experts on imprisonment in Brazil and the Netherlands, two of our featured countries. The event was also addressed by speakers from the international human rights NGO, Fair Trials, who co-published the report and are ICPR’s partner on the wider project – of which the new report is the first output.

The human stories behind the data

Given ICPR’s strong focus on prison statistics (as hosts and compilers of the World Prison Brief) we want to ensure this project never loses sight of the many ways prison affects people: not only those imprisoned, but their families, their wider communities and the people who work in prisons.

That is why a core element of our methodology in the wider project is about mapping the ‘custody journey’ in each country. That means drawing on real cases to understand the lived experience of criminal justice and imprisonment – after arrest, in pre-trial detention, during custodial sentences and after release.

Every human story behind a prison statistic has something to tell us about how a particular country uses imprisonment to respond to crime. The importance of listening to the human story came out clearly from the presentation by Jago Russell and Alex Mik of Fair Trials, about their work with individuals who have experienced unfair treatment in criminal justice systems. They played prison-report-launch2a one-minute animation by the Royal College of Art and filmed interviews with three people who have experienced pre-trial detention in different European countries. These can be viewed on Fair Trials’ website.

I was struck by what Jago had said in his Foreword to our report: ‘Statistics alone can sanitise reality – they do not speak to the violence, intimidation and isolation that are part of the daily experience of custody’.

Brazil’s recurring nightmare

Who better to pick up this theme than Dr Sacha Darke, from the University of Westminster? Sacha has visited 30 Brazilian jails and is an expert in the country’s sad history of uncontrolled growth in prisoner numbers – Brazil has seen prisoner numbers increase twenty-fold from around 30,000 in 1973 to over 600,000 today – and the violence and horror this has unleashed. He showed images from recent massacres and riots in prisons in northeast Brazil (discussed on pages 8 to 10 of our report). He then described the importance of prisoner governance, and organised crime group affiliation in Brazil’s prisons. Organised crime groups are by-products of wholly inadequate staff/prisoner ratios. In many of Brazil’s prisons, the role of staff is essentially to guard the perimeter, while prisoner ‘trusties’ are left to organise, arbitrate and discipline on the inside.

It was clear from Sacha’s presentation that Brazil’s prisons have always been in crisis and that there is no real prospect of enough capacity being built to change this. But, on a brighter note, he spoke of his visits to some of the country’s ‘community prisons’. These first emerged in the seventies in São Paulo and, though few in number, they are very different from the hellish, overcrowded prisons that prevail in Brazil. There is close collaboration between the prisons and prisoners’ families and communities. Many ex-prisoners come back as volunteers. Governors and senior managers are often former prisoners. Sacha referred to Fiona Macaulay’s research on Brazil’s community prisons, which have been praised as exceptionally humane in approach.

The Netherlands: reversing the punitive turn?

It was then over to Professor Francis Pakes (University of Portsmouth) to address the question: how did the Netherlands reverse its punitive turn? As explained in our report (page 21), after decades of low imprisonment levels, the Dutch prisoner rate surged from the late eighties, increasing by 200% and peaking at 134 per 100,000 in 2005. Interestingly, despite a strong Dutch tradition of criminology – and good statistical data – there is no consensus on precisely why the subsequent turnaround happened.

After hearing Francis speak, I was confident that in choosing the Netherlands we’d picked the right country to contrast with the high incarcerators featured in this report. There is a lot we can learn from the Netherlands. Maybe our project will contribute to the on-going inquiry about how the Dutch turned around their prison juggernaut.

FURTHER INFORMATION

Understanding and reducing the risk of imprisonment: interview with Catherine Heard

Report authors

Dr Jessica Jacobson, Director of ICPR
Catherine Heard, Director of ICPR’s World Prison Research Programme
Helen Fair, a Research Fellow at ICPR·

Read the press release about the report.

The World Prison Brief The statistical data in the report are sourced from the World Prison Brief, compiled by Roy Walmsley and hosted and published by ICPR. This unique and internationally renowned online database contains a wealth of information on prisons and the use of imprisonment in 226 independent countries and dependent territories around the world.

The Institute for Criminal Policy Research (ICPR) is based at the Law School of Birkbeck, University of London. ICPR conducts policy-oriented, academically-grounded research on all aspects of the criminal justice system. ICPR’s work on this report forms part of ICPR’s World Prison Research Programme.

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