The turning of the calendar is always a time for reflection. This year, at the turn of the century and millennium, it is only natural for these reflections to peer deeper into the past and for our hopes and dreams to extend further into the future. The twentieth century, like every century, will be remembered as much for its stunning achievements as its cataclysmic failures. Powered flight, space travel, computers and the eradication of small pox are but a tiny fraction of the twentieth century's great accomplishments. While these successes say much about twentieth century man's technological prowess, they say at least as much about his rapidly increasing ability to understand and control risk. Conversely, our failure to fully consider the risks associated with our actions is responsible for some of this century's darkest legacies. Sadly, this is a list too long to enumerate, but global warfare, the spread of disease and environmental degradation will forever serve as starkreminders of the consequences of ignoring the risks.

Yet it is this understanding of risk - that risk can be managed and controlled - that in many way sets us apart from our Dark Age ancestors a millennium ago. During the tenth and eleventh centuries, all events were considered to be the result of divine intervention. To think otherwise was heresy. The god or gods responsible for good health and bountiful harvests one year and then plague, pestilence and famine the next were alternatively thanked for their kindness and beseeched to show mercy. God truly did work in mysterious, if not capricious, ways. It was not until the sixteenth and seventeenth centuries that intrepid minds like Copernicus, Galileo, Descartes, Newton and others - building the works of the ancients - began to formally distill order from the chaotic physical and biological world in which we live.

It is impossible to understate the impact of the triumph of science andreason over superstition and fear. Each technological breakthrough produced corresponding breakthroughs in reducing risk and uncertainty. As our understanding of the world around us deepened, so did our willingness to accept risk. The fruits of these efforts led directly to the success of the expanding commercial economies of the Renaissance. Risk, it seemed, truly had its rewards. Consider, for example, the contributions of the period's astronomers. Through careful observation and elegant mathematics it was proved that celestial objects did indeed follow predictable paths through the heavens and could therefore berelied upon as navigational aids everywhere and at all times. The benefits were immediate, bringing a flourish of navigational achievements - and ultimately riches - to the monarchs of Europe. By 1488 the Cape of Good Hope had been rounded, Columbus sailed to the New World in 1492, and in 1519 an expedition led by Ferdinand Magellan embarked upon a successful three year odyssey to circumnavigate the world - the moonshot of the sixteenth century.

As was the case half a millennium ago, this century's greatest achievements were made possible because intrepid individuals, businesses and their governments were willing to assume significant personal and financial risk in the hopes of realizing still greater rewards. These great accomplishments owe much to quantum leaps in the understanding of risk (through the science of statistics), the control of risk (through the development of sound risk management techniques) and the spreading and transfer of risk (through insurance and capital markets). Many of today's complex mechanical, electronic and genetic technologies would be far too unreliable and unsafe for general usage if it were not for these advances. Risk analysis is now among the most important factors in determining which products make it to market and which do not - and when. The testing of new jet engine designs, automobile safety features, pesticides or drug therapies can delay the market debut of these products for years so that the risks inherent in using them may be better understood and minimized or avoided. If a product is too hazardous, it may not produced at all, even if some persons may benefit from it.

The dawn of the twenty first century will find civilization engaged in a furious battle against risk. Technology has emboldened us, leading us to believe that no risk is too large to be conquered. Embracing risk has freed us from the bondage of the soothsayers and oracles, but all too frequently brings us to the threshold of arrogance and brazen irresponsibility. While technology provides a measure of protection from the hazards that have plagued our species for millennia, that protection is seldom complete. We build unsound structures on fault zones, coastlines and flood plains, virtually assuring their eventual damage or destruction. We tinker with DNA, the building blocks of life, without full knowledge of the consequences. We fail to diversify our investment portfolios, needlessly subjecting ourselves to excessive volatility with no additional benefit. Satellites, scientists and Ivy League MBAs, we reason, will keep us safe and solvent. In reality, nature and man will continue to rain a continuous stream of calamities upon the earth and himself.

Nevertheless, technological innovations and corresponding reductions in risk have saved countless lives and preserved untold billions in property. Ironically, however, as technology continues its inexorable advance, it has had the effect of pushing an ever increasing number of others into harm's way. Advances in food production and health care over the past 50 years have dramatically increased longevity in developing countries. Unfortunately, population growth has outstripped economic opportunity, leaving people and their property as exposed to the wrath of nature as their Dark Age European counterparts were one thousand years ago. In fact, more than 80% of the world's population lives without the benefit of effective risk control, risk mitigation or risk financing.The 40 largest catastrophes in terms of fatalities since 1970 killed an estimated 1.1 million people. Fewer than 10,000 (less than 1%) of these fatalities occurred in the developed world. Insured losses for these events amounted to $4.7 billion (in 1998 dollars), only $2.0 billion of which occurred in developing countries. Stated differently, insured catastrophe losses in the developing world over thepast 30 years were approximately equal to the average insured catastrophe losses in the United States every 10 weeks during 1998 and 1999. In contrast, the 40 most expensive catastrophes in terms of insured losses over the same period cost insurers $107.9 billion, but claimed just 11,425 lives. Only three of these events occurred outside the developed world, accounting for about 2% of all losses but 20% of the deaths. If we think of insured losses per victim as a proxy for a society's level of sophistication in terms of mitigating risk, we see that the developing world lags hopelessly far behind. In the developing world, insured losses per catastrophe victim in 1998 amounted to $1,892. In the developed world (essentially North America, Western Europe and Japan), that figure is $11.1 million. The accompanying charts verify that 19 out of 20 deaths from catastrophes occur in the developing world and that investment in risk mitigation appears to be extremely low.

Making predictions that extend to the end of the next century is generally viewed as foolhardy. But the gulf dividing the developed world from less developed countries from a risk management perspective is so vast that it cannot possibly be bridged during the next 100 years. Effective tools and techniques for controlling and transferring risk are as essential for economic development as a sound banking or judicial system. Without them, many countries will become stranded along the road to development. In India and China, for example, which account for one third of the world's population, non-life insurance expenditures per capita are about $2 and $5, respectively, compared to $1,400 in the United States or $800 in Japan. More than 320,000 people have perished in mega catastrophes in these two countries alone since 1970.

On this the eve of the twenty first century, much of the world islooking forward to a renewed period of economic prosperity. The United States will soon enter a record ninth consecutive year of economic expansion. Europe appears to be rousing itself from its deep economic slumber. Asia, whose economic fortunes appeared dismal during the currency crises that swept through the region in 1997 and 1998, also finds itself on the road to recovery. However, most of the world's six billion inhabitants will see little change in their circumstances - held back by the same scourges that have afflicted humans since the dawn ofhistory. Population growth of just 1% per year implies a world with 16.2 billion people a century from now. Where will they live? Technology will probably allow us to feed these masses, but it is doubtful that we can keep most of them safe and secure.

Robert P. Hartwig, Ph.D., is vice president and chief economist at theInsurance Information Institute.

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