Risk management has shown an important progress through its evolution. In the beginning of the last century, the concept of risk was not clear, but as the time has passed, the concept has become more clear and meaningful for all parties who are taking risks. This evolution originated from the individuals’ or entities’ needs which are securing them against the undesired outcomes. As the time has passed the types of the risk has increased because the borders between different economies have disappeared.
The evolution of risk management since the beginning of 20th centuryare stated below:
· 1900, The great Galveston, Texas, hurricane and flood kills more than 5,000 people and destroys a city in less than 12 hours, materially changing the nature and scope of weather prediction in North America and the world.
· 1905-1912, Workers’ compensation laws are first introduced in the
. These were the “social insurance” schemes proliferated worldwide, leading also to government provision of pensions in most countries in the 1930s and afterwards. United States
· 1920, British Petroleum forms Tanker Insurance Company, Ltd., one of the first captive insurance companies.
· 1921, Frank Knight publishes Risk, Uncertainty and Profit, a book that becomes the keystone in the risk management library.
1921, A Treatise on Probability, by John Maynard Keynes, appears.
· 1926, John von Neumann presents his first paper on a theory of games and strategy at the
, suggesting that the goal of not losing is superior to that of winning. University of Göttingen
· 1929, the first global crisis.
· 1933, The US Congress passes the Glass-Steagall Act, prohibiting common ownership of banks, investment banks and insurance companies.
· 1945, The US Congress passes the McCarran-Ferguson Act, delegating the regulation of insurance to the various states, rather than to the Federal government, even as business was becoming more national and international.
· 1952, The Journal of Finance publishes “Portfolio Selection,” by Dr. Harry Markowitz, who later wins the Nobel Prize in 1990. It explores aspects of return and variance in an investment portfolio, leading to many of the sophisticated measures of financial risk in use today.
· 1956, The Harvard Business Review publishes “Risk Management: A New Phase of Cost Control,” by Russell Gallagher who will become the insurance manager of Philco Corporation in
1962, In Toronto, Douglas Barlow, the insurance risk manager at Massey Ferguson, develops the idea of “cost-of-risk,” comparing the sum of self-funded losses, insurance premiums, loss control costs, and administrative costs to revenues, assets and equity.
· 1966, The Insurance Institute of America develops a set of three examinations that lead to the designation “Associate in Risk Management”.
1971, a group of insurance company executives meet in to create the International Association for the Study of Insurance Economics. Paris
· 1972, Dr. Kenneth Arrow wins the Nobel Memorial Prize in Economic Science, along with Sir John Hicks. Arrow imagines a perfect world in which every uncertainty is “insurable,” a world in which the law of Large Numbers works without fail.
· 1974, Gustav Hamilton, the risk manager for
’s Statsforetag, creates a “risk management circle” graphically describing the interaction of all elements of the process, from assessment and control to financing and communication. Sweden
1975, in the US, the American Society of Insurance Management changes its name to the Risk & Insurance Management Society (RIMS), acknowledging the shift toward risk management first suggested by Gallagher, Snider and Denenberg in Philadelphia twenty years earlier.
· 1976, with the support of RIMS, Fortune magazine publishes a special article entitled “The Risk Management Revolution.”
· 1980, The Society for Risk Analysis forms in
to represent public policy, academic and environmental risk management advocates. Risk Analysis, its quarterly journal appears the same year. Washington
· 1983, William Ruckelshaus delivers his speech on “Science, Risk and Public Policy” to the National Academy of Sciences, launching the risk management idea in public policy.
· 1986, The Institute for Risk Management begins in
. Several years later, under the guidance of Dr. Gordon Dickson, it begins an international set of examinations leading to the designation, “Fellow of the Institute of Risk Management,” the first continuing education program looking at risk management in all its facets. London
· 1987, “Black Monday,”
October 19, 1987, hits the stockmarket. Its shock waves were global, reminding all investors of the inherent risk and volatility in the market. US
· 1988, BIS announces the first capital accord which is known as
· 1990, The United Nations Secretariat authorizes the start of IDNDR, the International Decade for Natural Disaster Reduction, a ten-year effort to study the nature and effects of natural disasters, particularly on the less-developed areas of the world, and to build a global mitigation effort.
· 1992, The Cadbury Committee issues its report in the United Kingdom, suggesting that governing boards are responsible for setting risk management policy, assuring that the organization understands all its risks, and accepting oversight for the entire process.
· 1992, British Petroleum turns conventional insurance risk financing topsy-turvy with its decision, based on an academic study by Neil Doherty of the University of Pennsylvania and Clifford Smith of the University of Rochester, to dispense with any commercial insurance on its operations in excess of $10 million.
· 1993, The title “Chief Risk Officer” is first used by James Lam, at GE Capital, to describe a function to manage “all aspects of risk,” including risk management, back-office operations, and business and financial planning.
1995, A multi-disciplinary task force of Standards Australia/Standards New Zealand publishes the first Risk Management Standard, AS/NZS 4360:1995 (since revised in 1999), bringing together for the first time several of the different sub-disciplines. This standard is followed by similar efforts in both and Canada (1997). Japan
· 1996. The Global Association of Risk Professionals, representing credit, currency, interest rate, and investment risk managers, begins in
and New York . London
· 2000, widely-heralded Y2K bug fails to materialize, in large measure because of billions spent to update software systems. It is a noted success for risk management.
· 2001, terrorism of September 11 and the collapse of Enron remind the world that nothing is too big for collapse. These catastrophes made risk management more important.
BIS announces the new capital accord which is known as Basel II. Broader information will be given in the relevant chapter.
· 2008, Mortgage crisis spread all over the world by making risk management as the primary objective for all banks in the whole globe.