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Risk can be impacted by two actions: caution and calculation. Regarding the first, German screenwriter Werner Herzog had this to say:
I prefer to be alive, so I'm cautious about taking risks.
This implies that to be safe (and still alive), risks should not be taken except when guided by caution. This is a different mindset than that of the insurance industry, which finds safety not in caution but in calculation.
Unlike caution, which tends to shift away from risk, calculation shifts toward the “right” risk, as noted in a recent LexisNexis insurance white paper:
The insurance industry takes calculated risks to take the edge off the risks we face personally and professionally, and that our organizations face in their operations. Without it there are many risks that would never be taken. Many useful or even lifesaving services would never have happened. [emphasis added]
Insurers understand that to be successful, calculation must light the path of risk. For without calculation, an insurer can only be guided by caution, which weighs heavily against risk. This leads to what John F. Kennedy called “comfortable inaction.” So to avoid comfortable inaction (and the foreseeable failure it leads to), an insurer must:
Insurance Risks: Hard to Calculate, Now Even Harder to Find
At first blush, “calculation” might sound like the more difficult of the two risk components. It takes an army of actuaries and some high-level math to calculate the right insurance risks. But before calculations can begin, risk needs to be identified. And in this day and age, risks are changing, evolving and appearing faster than ever before.
Take for instance today’s generation of telecommuters, a workforce that didn’t exist 20 years ago. With the rise in mobile technology, telecommuters have become more prevalent, and with this, the insurance risks have evolved. These risks often involve workers compensation as highlighted by The National Law Journal:
Defending [workers compensation] claims from employees injured at home becomes a challenge, because those employees are likely unsupervised and the accident does not have witnesses. In addition, the employer has little-to- no control over the home work environment.
Or consider the growing lodging industry that’s being fueled by companies such as Airbnb, HomeAway and Tripping.com. Insurers now have to consider the risks homeowners face in offering their homes to strangers. A recent article in The Outer Banks Voice underscored this new risk:
Why are insurers so concerned about your renting your house under the Airbnb program? One reason is that renting the home might change its use from residential to commercial, and residential policies don’t take into account the increase liability risk that comes with Airbnb rentals.
Evolving Risks: There Are Bigger Dangers on the Horizon
For insurers, telecommuting and lodging are a very small fraction of today’s evolving risks. The modern world, for the insurance industry, is fraught with 21st-century risks to calculate. One author, writing for The Insurance Journal, stressed it this way:
One way that we serve insurance consumers is by understanding the evolving, yet unchanging nature of risk, especially the risks associated with their worlds, whether we’re talking about individuals, families, businesses, or other organizations. Wait, how did we get to risk and how can risk be evolving, but unchanging?
All of this technological change has created new risks that we didn’t consider, even as late as my entrance into the insurance world, less than 20 years ago.
For an insurance company, 21st-century risks go well beyond 21st-century employees (telecommuters) and 21st-century rentals (Airbnb-type lodging). Today’s risks are many, a product of disruption. And as noted in the Lexis Nexis white paper:
Disruption is the enemy of calculated risk.
The LexisNexis white paper, The Insurance Sector Navigating Risk In An Era Of Disruption, outlines some of the major risks today’s insurers are watching, both to avert calamity for themselves and their policyholders, and to find new business opportunities by insuring change. These major risk categories focus on:
For an in-depth focus on these disruptions and the insurance risks they create, download the LexisNexis white paper, The Insurance Sector Navigating Risk In An Era Of Disruption.