207. The role of insurance in risk management

Key insights

🏢 Insurance plays a crucial role in risk management by helping organizations transfer and mitigate potential losses through the concept of risk profiles.
📉 The concept of VAR (Value at Risk) is an important metric used in insurance to measure and manage unexpected losses.
🤔 Many organizations mistakenly view insurance as a solution for all types of losses, when in reality it is only suitable for protecting against catastrophic and highly unlikely losses.
🏆 The speaker's company was named the best risk manager in Europe and received an award for the best risk management implementation.
💰 The controversial aspect of insurance lies in the fact that it involves transferring risk from individuals to a collective pool, which can lead to moral hazard and adverse selection.
💰 Insurance is generally expensive, which suggests that the cost of mitigating risks through insurance can be a significant financial burden.
💡 Keeping a portion of the risk on your balance can be beneficial for the company, as it allows for better liquidity in case of something bad happening.
💰 The speaker argues that having low deductibles and transferring a large portion of risk to insurance companies can result in overpaying three times the fair estimate based on calculations, suggesting that insurance premiums may be inflated.

Insurance is an expensive but necessary tool for transferring catastrophic risks in risk management.

00:00 🏢 Insurance plays a crucial role in risk management by mitigating and transferring potential losses based on an organization's unique risk profile.
01:35 💡 Unexpected losses are the additional capital required beyond expected losses, measured by the VAR metric.
01:52 🔒 Insurance is not economically viable for all types of losses and is primarily used to protect against catastrophic and highly unlikely events.
02:47 💡 Buyers insurance is rarely cost effective, and the speaker's company was recognized for their risk management expertise.
03:12 🤔 Insurance is not the solution for risk management.
03:13 💡 Insurance is not a favorable purchase as it is not priced in your favor.
03:23 💸 Insurance is always expensive.
03:29 💼 Insurance in risk management transfers catastrophic risks to third parties, providing peace of mind despite being expensive and often required by banks and stakeholders.


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