From the Editor's Desk
Human vs. Ostrich
April’s issue focuses on risks, ranging from litigation to regulation, pandemics and smart cities. Also, a look at pension risk transfer deals.
- Patricia Vowinkel
- April 2020
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In their book The Ostrich Paradox, Howard Kunreuther and Robert Meyer talk about disaster psychology and offer a look at what we can do to build resilience and create a safer world.
Kunreuther and Meyer, co-directors of the Wharton Risk Management and Decision Processes Center, say ostriches get a bad rap for sticking their heads in the sand when in danger. It turns out, however, that they are actually quite good at dealing with risk.
It's humans who really do a poor job of preparing for disasters.
The book came to mind in early March as the debate intensified over how to respond to the coronavirus.
April is Risk Awareness Month, and our April issue has traditionally focused on risk and risk management.
For risk managers, a pandemic has been on the radar for some time now—but this virus has put corporate pandemic plans to the test.
What we know is that we do poorly when preparing for low-probability, high-consequence events, such as severe natural disasters, Kunreuther said in an interview with Best's Review in 2017.
He and Meyer identified six biases that lead individuals, communities and institutions to make grave errors that can cost lives. These include myopia, amnesia, inertia, simplification, herding and optimism. Myopia means the long-term consequences of events are missed. Amnesia is the tendency to quickly forget things that happened in the past.
Inertia is when we keep doing what we've been doing, simplification is when we do not look at all of the information when making decisions, and herding is when we look to others for guidance on decision-making.
Optimism is when we underestimate risk probabilities, leading us to ignore worst-case scenarios and think bad things only happen to others.
The challenge for risk managers is to play it right—to prepare for the worst, develop contingency plans and build resilience, so that their organizations are prepared for the next crisis, be it a storm, an earthquake or a pandemic.
Because as risk professionals can tell you, sometimes disasters do strike.
In this issue, we examine other critical risks impacting the insurance industry.
“Without Consent” looks at the emerging risk of class action lawsuits over the collection and use of biometric information. Those class actions are just one piece of a much broader problem the industry is facing when it comes to litigation.
In “Legal Maneuvers,” Best's Review takes a look at the evolving legal climate and how decades of underpricing in many commercial lines has left the industry ill-prepared to handle the growing exposures tied to social inflation and rising jury awards.
Insurers also are focused on meeting the demands of regulators. In “A Renewed Focus,” Best's Review looks at climate change and industry efforts to manage the risk and improve sustainability.
In the life sector, insurers have been announcing big pension risk transfer deals. Best's Review examines what's behind this trend.
Best's Review also this month introduces a listing of recent AM Best research with the Best's Analysis page.
