A Quick Story About the Dilemma of Risk

As the definition above states, any endeavor carries some risk, the question for all enterprises and individuals is how to value the risk and then mitigate, control, or transfer the risk. However, it is well documented that humans misprice risk through an innate optimism bias. 

Further Nassim Taleb’s “The Black Swan” outlines that on the whole, humans do not allocate properly for events that are a surprise, have a significant impact and then are inappropriately rationalized in hindsight.

The transfer part of the risk evaluation process typically garners the most attention as that is where the money is made. When anyone or anything buys insurance they are technically putting a price on a risk (the amount of a human life as an example) and then seeking to transfer that risk to a third party. The third party is most often an Insurance company that offers terms of coverage (what triggers a loss and what does not by exposure type) for a cost (The Premium) which they determine to acquire the agreed upon risk (The Payout or Limit).

It may sound complicated, but almost all adults buy some form of insurance and the biases and judgement around the subject of insurance has been well established for decades. In recent years, the marketing of insurance products has dominated our advertising channels and brokers and insurance companies have all sought to make the “buying” process as simple as possible.

Here is the PROBLEM:

If humans misprice risk individually and groups of humans exacerbate the mispricing with the problem of “group think” and the insurance companies write the terms of the policies which the consumer admits they never read, who is the responsible party?  

The SOLUTION:

The Banyan Tree Strategies DEEO Process is available for businesses and families that require a more thorough look into the risks they are currently facing.

Discover

• Discuss with your team the threats to your group
  
• Prioritize the threats 
  

Establish

• Create a safe dialog around how to address each threat
  

                         - Mitigate
                         - Control
                         - Transfer

• Listen to all stakeholders 
  

                         - It is common for people to be aware of problems but not speak up

• Build a working document for the team to use on a go forward basis.
  

Equip

• Set clear guidelines with the insurance community on your terms
  
• Establish long term perspectives on cost objectives
  
• Create a written service timeline for mitigating and controlling your exposures
  

Oversee

• Establish a process for checking on your plan 
  
• Designate a team to review the current plan of action
  

Risk Management Solutions

Corporate Risk Questionnaire

Family Risk Questionnaire

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Client Testimonials

“Drew has the ability to ask questions that reveal the challenges your business is facing and then help you solidify a plan of action.” 
-Jason Taormino

Past and Current Clients