All of a sudden, Australia is being assailed by natural
disasters of unprecedented scale – from the bushfires of the
2020 summer to the one in 100 year floods of autumn 2021. With
recent heatwaves in Europe, snow storms in Texas and forest fires
in California and South Africa, Australia is not alone. Forecasts
are for these type of events to only increase in frequency and
severity as the
consequences of climate change unfold.
These rare but destructive events are examples of 'fat
tail' risks. For fat tail risks, ruin is more likely to come
from a single extreme event than from series of bad episodes. Fat
tail risks are not more frequent, they are more consequential.
Contracts work well regulating and coordinating parties in the
ordinary course of providing and paying for goods and services, but
they struggle with extreme circumstances. This is particularly the
case for long-term infrastructure contracts where the stakes are
high and losses are calculated in the
