Insurance is not risk management

A problem with insurance is that it’s a passive post-loss device that is often confused as “risk management”, which it is not.  Insurance just sits and waits to see if what just happened to you qualifies as eligible for financial assistance, but it does nothing to help you seek-out the risks in your life and defend your financial position with a plan of action.  And that passivity and insurance-company-centric focus has lead to a widening gap between what insurance can do and what you may actually need.

Insurance is neither revolutionary, nor evolutionary, and it’s easy to see its deficiency when you consider the risks of tomorrow that don’t relate well to the way in which insurance products are manufactured, priced, and serviced.  There are worries among families that don’t get addressed because insurance doesn’t have an answer for them other than, “if that happens, there may be coverage if…”, and many families and advisors then just stop and miss out on what might be a real solution.

We conducted a survey of families and their advisors and asked them to describe what they most worry about, or what they think will affect them most in the years to come.  A list of some of the most common responses are below, but note that very few are “insurancey”, like kitchen fires, toilet overflows, dog bites, or windstorms.  If your risk management process is simply to shop insurance and decide which deductibles are best, you’re not likely to be addressing some of these other concerns.  We believe a better way is to incorporate a truly holistic risk-management approach as your process, with insurance being just one small piece of it.  And it’s in the development of that process that we can help.

Photo:  Rachael McGraw in Florence, Italy