Tag Archives: Business Economics and Informatics

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. 


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.


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.’


Rio 2016: Predicting Success

This post was contributed by James Fisk, graduate administrator at the School of Business, Economics and Informatics. This article relates to new a new study by Professor Klaus Nielsen, of Birkbeck’s Sport Business Centre and Department of Management. Prof Nielsen’s study uses novel measures to predict countries’ success in the approaching Rio 2016 Summer Olympic Games.

A hand with the Brazilian logo and the five Olympic ringsWith the opening ceremony of the 2016 Olympic games due to take place in a few days (6th August, to be precise) athletes throughout the world will be making their final preparations for the biggest sporting event of their lives.  It won’t just be anxious athletes arriving in Rio de Janeiro this week; the international press, hopeful fans and governments will all be alighting for the competition, whose roots famously stretch back to antiquity. The Olympic Games appear as a focal point not just for athletes, but also for governments throughout the world, for whom huge investments have been made in the pursuit of the coveted Gold medals. So, who will come out on top? Fortunately for us, Birkbeck’s Dr Klaus Nielsen, Professor of Institutional Economics, has written a paper that should give us a good idea. Using a combination of results from recent world championships in Olympic sport disciplines, world rankings, taking into account banned or absent athletes and historical comparisons, Dr Nielsen has predicted the winners and losers of the forthcoming tournament.

The Top Three

The top three may not come as a huge surprise to many, they are: the United States of America, China and Russia.  However, it’s not all static at the top, as Dr Nielsen’s paper predicts the overall medal share for the three giants to reduce from 30% in 2012, down to 25% for 2016. A reduced share of the medals for Russia are a direct consequence of many of its athletes being banned or suspended, particularly in disciplines for which Russia has traditionally been dominant, such as weightlifting. The USA, meanwhile, face reductions in their predicted tally following a disappointing showing from their Track and Field team at last year’s world championships, although overall, the USA is still predicted to come out on top.  China are also set to see their tally drop from 2012, from 88 medals to 83, with Dr Nielsen citing a lack of diversification in the sports they actively compete in. So, with the big three seeing a 5% drop in success shared among them, where will the extra medals go?

Great Britain

Four years after successfully hosting the tournament, in which they won 65 medals, Great Britain return with momentum. Although funding has not dropped below the level it received in the build up to London 2012, the ambitious previous target of becoming the first nation to win more medals in the tournament immediately after hosting, has recently been replaced with a more modest one of winning at least 48 medals – which is more than its hitherto most successful overseas Games in Beijing 2008. Professor Nielsen believes that this target will be achieved in Rio. Recent performances at world championships suggest that a figure of 51 medals is likely. Great Britain is predicted to end up as the fourth best nation so although the top three look set for diminished returns, Great Britain are not poised to use this to their advantage and interfere with the dominant triumvirate.

The beautiful coastline of Rio de Janeiro

Movers and Shakers

Rio looks set to witness changes to the top 10 medal-winning countries. Italy look set to drop out of the top 10 and Brazil, the Netherlands and, rather surprisingly, New Zealand will be vying to shoot up the table.  New Zealand will be hoping to use a phenomenally successful London 2012 showing (where they won 13 medals) as a platform for increasing their share of medals to 20. Although investment plays a significant role in this upward trajectory, Dr Nielsen highlights their dominance in 3 of the 4 new events due to debut at the Olympics. Rugby 7’s, as well male and female Golf, will see New Zealand continue their ascendancy into the higher echelons of sporting achievement.

Whilst the Olympics has always cherished its surprises, such as Abebe Bikele  in 1960 or Billy Mills in 1964, Dr Nielsen’s work should put some anxious minds to rest, whilst others – such as Russia and Italy –  will perhaps be hoping for more Olympian surprises.

Read Professor Klaus Nielsen’s study: “Medal predictions for the Rio Games – the competition between national elite sport systems

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