Financial Loss · Insurance · Risk Management

What is a Black Swan Event?

I got a lot of great feedback on my post about protecting yourself from Black Swan events, but numerous people asked me to better define what a Black Swan was and to provide some examples.

A Black Swan is simply an event that you never could have predicted that causes catastrophic damage.  Even when something is predictable the results are typically underestimated.  Some real life examples are the banking crisis in 2008, the Fukushima nuclear disaster in 2011, and 9/11.

Here are some examples of what a Black Swan could like for a company in the Life Science industry:

  • A fire destroys your building.
  • You are a sole sourced company and your key supplier suffers a loss so they can no longer produce your product.
  • You or your key supplier are shut down due to regulatory action.
  • Your patent is infringed upon and you need to defend it.
  • Your CRO’s computer system is hacked into and the data from your clinical trial is stolen or destroyed.

What these examples have in common is that they can all be insured.  The problem is that only the first example is usually covered correctly by your insurance program.  If you are not sure if you have coverage for the other events, it means you probably don’t.  Do you not have coverage because your broker never told you there was a solution or because you made a conscious decision to self-insure?  If it is the former you need to ask yourself if your broker is actually providing value.

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