Risk World: What Can Commercial Insurance Do?
In today’s society, risk and risk management are unavoidable topics, whether it is a macro field or a micro field, whether it is an individual or a family, whether it is an enterprise or an industry, whether it is a government or a society. This is not surprising, since the emergence of human society, risk has been with us. To use an image metaphor, the risk is the “associated product” of human society, and any activity is bound to be accompanied by risk, but in different times, different development stages, or different types of activities, the risk is an “associated product”. The type and degree of “goods” vary. one
What is the risk?
It can be said that there are many related definitions, but opinions differ. However, the vast majority of people should agree with this meaning: that is, things that people do not want to see and that will negatively affect human production and activities. The risks discussed here cover a wide range, and people can make different divisions according to different dimensions.
For example, from a macro perspective, they can be divided into natural risks, social risks, political risks, economic risks, technical risks, legal risks, and each category can be subdivided according to various dimensions. If there is no space limit, this list can go on indefinitely. With the continuous changes of economy and society, especially with the progress of science and technology and the expansion of economic aggregate, new production methods, new business models, and new products are constantly emerging. Just like every coin has two sides, the emergence of any new production method, new business model, and new product brings benefits to human society, but also makes the total amount of risks faced by human beings increase day by day. increase, the types of risks increase, and the risk structure becomes more complex. The World Economic Forum has compiled and published the Global Risks Report since 2006. As can be seen from the development and changes in the past ten years, human society is facing more and more emerging risks. For example, the “2021 Global Risks Report” lists what human beings may face in the next 2 years, 3-5 years, and 5-10 years, involving five fields including economy, environment, geography, society, and technology. dozens of risk factors, including infectious diseases, extreme weather events, weapons of mass destruction, digital inequality, IT infrastructure segmentation, asset bubble bursting, climate change, human environmental damage, ecosystem damage, cyberattacks, technology Governance failures, debt crises, cybersecurity failures, terrorist attacks, the collapse of social security, collapse of multilateralism, anti-science, etc. It can be seen from this that we indeed live in a “risk society” where risks are always present. But unfortunately, insurance companies are known as “special enterprises with operating risks” may not be able to directly underwrite all the above risks. Therefore, for some risks, the parties can only take the method of avoidance, the method of preventing and reducing losses, or the method of hedging; some must be dealt with by employing social insurance or policy insurance. So, what is the risk of insurance company management? Strictly speaking, it is a risk called “insurable risk”, and the ideal “insurable risk” usually meets the following criteria. First, economic criteria: that is, these risks have the characteristics of “a large number of independent and identically distributed”, “the frequency of occurrence is low, but once they occur, the severity of the loss is very high”, “the occurrence of the loss is accidental” and so on; second, Technical standard: that is, the probability distribution of losses can be measured, and the time, place and amount can be determined; third, commercial standard: that is, the underwriting risk can bring profits to the company on the premise of meeting the needs of consumers Fourth, legal moral standards: that is, the risks underwritten are under the premise of meeting the first three standards, and are not contrary to legal morality. Of course, “insurable risk” is not static. With the advancement of scientific and technological means, many original “uninsurable risks” will gradually become today’s “insurable risks”. Today’s “uninsurable risk” may become tomorrow’s “insurable risk”. This shows that in a risk society, the real risks that insurance companies operate and manage is only a small range represented in the risk circle, even though this range is actually expanding with the development of human society: from property risks From risk to life; from health risk to liability risk; from maritime risk to land risk; from automobile risk to aviation risk; from catastrophe natural risk to micro-credit risk…. Therefore, when we say that “an insurance company is a risk-management enterprise, it actually needs to be defined from two dimensions: first, the subject refers to commercial insurance; second, the object refers to the willingness and ability of commercial insurance companies to Risks of operation and management. If it is not limited, it will inevitably make people misunderstand the industry, and even give people the “pretext” to criticize this industry. Many years ago, I heard this statement: Corruption risks are very destructive to Chinese society, doesn’t insurance cover the risks? Why not design corruption insurance to curb corruption? This statement is undoubtedly very imaginative and well-intentioned, but it is neither reasonable, unreasonable, nor legitimate. There are many similar reasonings and arguments, and one of the main reasons is that commercial insurance is equated with an extremely broad “risk”. It can be seen from this that when we say that “insurance companies are special enterprises that manage risks” without adding the definition of “insurable risks”, we are actually pushing the insurance industry into a very embarrassing situation. The accurate statement is that commercial insurance should follow its development laws and operating principles, and underwrite its own “risks that can be managed”, that is, “insurable risks”, not “risks that you want to manage”, otherwise, insurance companies will face A great threat that will ultimately damage the interests of all policyholders, thereby undermining the foundations of the insurance system. two, However, the current problem is that the coverage of “insurable risks” in my country’s insurance industry is very insufficient. Various indicators such as insurance density, insurance depth, insurance rate, claims rate, and the number of insurance policies per capita all reflects commercial insurance and it should be Compared with the function and role played, there is still a long way to go. This is the problem that we need to be alert to, reflect on, and solve. To effectively expand the coverage of “insurable risks”, the insurance industry first needs to adhere to the principle that “the insurance mechanism is the unity of loss compensation and risk control”, and treat insurance as a process rather than just an end result. In this process, insurance institutions should use their professional advantages to focus on the loss prevention of the underwriting target, thereby reducing the deadweight loss of social wealth in disasters and accidents.
The active risk control measures of insurance companies will enable more institutions and families to enjoy the benefits of “preparing for a rainy day”, to proactively purchase insurance products and services, thereby enhancing the scope and level of risk protection; secondly, the insurance industry must deepen the supply side Reform, promote the high-quality development of the insurance industry itself, and strive to provide the society with marketable products and services; thirdly, the insurance industry must actively use scientific and technological means to empower product design, pricing, sales, claims, and other links. The practice has shown that the application of new technologies such as big data, cloud computing, artificial intelligence, and blockchain can expand the extension of “insurable risks”, make more accurate risk assessments, collect and organize data as soon as possible, and provide insurance coverage.
More detailed classification of people can play a significant role in reducing information asymmetry, preventing adverse selection and moral hazard, etc., which can reduce insurance premiums and improve the speed of claims settlement, which will definitely improve the quality of insurance supply and Efficiency and greater appeal to consumers. In addition, in a risk society, commercial insurance should also actively engage in the work of “risk protection expansion” through the following two channels:
First, increase the connection with social insurance, and use professional technology to help social insurance play its role. , to expand the coverage of risk protection; the second is to increase cooperation with the capital market, use new risk management techniques such as risk securitization to leverage the power of the capital market, improve the ability of risk underwriting, and expand the scope of risk underwriting. At the same time, as an industry with lasting vitality and strong positive externalities, commercial insurance should also actively extend its “tentacles” and play an important role in the construction of the following six major systems:
1. Investment system. Although we cannot operate the insurance industry with an investment mindset, insurance companies should become important institutional investors and other investment fields in the capital market due to the characteristics of insurance operations that derive a strong investment function from the “protection function”.
2. The credit system. Credit is the essence and essence of the market economy. As an insurance industry based on “maximum integrity”, its operating principles and paradigms play an important guiding role in establishing a credit system for the whole society;
3. Big data platform system. Big data is profoundly changing the way people think, produce, live, learn and communicate. As an industry based on the “theorem of large numbers”, the insurance industry has been in perfect harmony with “big data” since its birth. Without data, it will be difficult to price insurance products, insurance companies will have difficulty preventing adverse selection and moral hazard, and it will be difficult for the insurance industry to aggregate various risks across time, space, and carriers, to smooth the risk cycle and reduce risk losses. It can be seen that as an industry that survives and develops based on “data”, it can undoubtedly contribute experience, wisdom, and technology in the construction of the big data platform system.
4. Technology innovation platform system. Technological innovation is an important engine for a country’s economic development. The technology industry, especially the high-tech enterprises, once successful, will produce economic and social benefits that are much higher than ordinary enterprises; and once they fail, they will suffer heavy losses, that is, the so-called high profits and high risks coexist. As one of the best means of risk management, science, and technology insurance can play an effective role in enhancing the innovation ability of enterprises, amplifying the output effect of science and technology investment, and promoting, promoting, and improving the construction of the national science and technology innovation system. 5. Catastrophe risk prevention system. Due to the impact of human activities on the natural environment, the frequency of natural disasters and extreme weather events is increasing, and the frequency of catastrophes is also increasing. If there is no effective risk prevention system, with the increase of the total economic volume, the economic vulnerability of the areas with frequent natural disasters will continue to increase, and the economic losses caused by catastrophes will also increase. Commercial insurance can play a unique role in accelerating the construction of a catastrophe risk prevention system, improving the management ability of catastrophe risks, and promoting the stable development of society. 6. Social security safety net system. Promoting social fairness and justice, enhancing people’s well-being, and realizing all-around human development are the ultimate goals of human development. The all-around development of human beings has comprehensive and profound connotations, but its primary premise is safety—the safety of life, the safety of the property. Insurance is such a great system. It plays an active role in safeguarding property and life safety, maintaining social stability, and promoting social progress. It plays a fundamental role in the entire social security safety net. In short, with human society, some risks affect our production and life all the time. As one of the most effective mechanisms for risk management under market economy conditions, commercial insurance should play an important role and give full play to its due role, so that human society can “dance” with risks and better “avoid harm” profit”.