The typical approach to managing risk in a family is one best described as Respond & Recover. The whole insurance industry is predicated on the value of this approach as it supplies products and professionals dedicated to putting families back on track after a loss event. And this paradigm is ingrained into the expectations of consumers and their advisors to the point where insurance is seen as THE risk management option available.
But a complementary approach to managing risk in a family should be one that I’ll describe as Predict & Prevent. There should be an overwhelming push to build an ecosystem of products and professionals dedicated to stopping the bad day from happening in the first place.
Fortunately, I believe a wave of change is coming in that direction so that the new paradigm for managing risk in a family will incorporate both. Markets love efficiency and not losing is more efficient than recovering from a loss. Technology and sensitivities to Big Data that drive the arbitrage within the insurance industry can be flipped to the prevention market where there’s profit from behavioral change. And if presented an alternative, consumers will prepare an answer to the question, “how much would you spend to not spend money on insurance?”.
Practically speaking, this movement should come from the insurance industry where the experience and proclivity to be concerned with family risk lends itself best to adding a Predict & Prevent mindset. Very little investment would be needed if those in the insurance business shared this vision and expanded where they need to go. But economic vacuums will be filled by someone else if the sacred cows of “the way things are” aren’t dealt with.
A car company changed the energy market, an information company changed brick & mortar shopping, a consumer electronics company changed the music industry, and a philosopher(s) might be changing centralized finance as we speak. None of these disruptions spelled the end of the original market, but the biggest winners were the outsiders who didn’t invent the mechanisms of their movement, but merely applied them to the vision that “this is better than that“. I bet the original insiders in those markets wish now that they’d been their own disruptors. And as I predict that someone will be successful selling the vision that prevention is better than reaction, we’ll see who that someone will be.