Inside Track

New Experiences, New Risks

New Experiences, New Risks

By Eric P. Harding

I have two sons. As I’ve mentioned in this space previously, they bring me great joy … and great terror. See, these boys are fearless. And while that may sound like a humblebrag of the highest order, this trait has its downsides. They love to push themselves, to try new things. That’s a natural and desirable developmental urge, of course, but it can result in (literal) pain.

I’ll give you two examples:

  • In September, the day before he started first grade, my older son screwed up the courage to play laser tag with a group of older kids. He had a great time … until a teammate rushed past him, sending him sprawling to the ground. He landed wrong and sustained a buckle fracture in his wrist.
  • And the weekend before this issue when to print, my younger son decided he was ready to emulate the older kids playing superheroes on the steps, and leapt down to the landing from the eighth (!) step. You guessed it—another new experience, another buckle fracture.

But when they talk about their choices and the results of those choices, they don’t dwell on the pain—instead, they revel in their bravery. They’re coming to understand that trying new things can be exciting and scary in equal measure.

Our cover feature this issue, “Outer Space for All” (page 26), confronts this idea directly. For those among us who’ve always dreamed of experiencing space travel, enterprising companies are working hard to make that dream a reality. But when something goes wrong—and something will go wrong—who’s on the hook? From property insurance for the spaceflight providers to short-duration health insurance during the experience, insurers and participants need to consider the risks of this out-of-this-world endeavor—and how to mitigate against them.

New possibilities force us to re-examine how we think about risk. But, argues the author of our second feature, “Risk Is Not a Four-Letter Word” (page 32), that might not always be a good thing. The rise of computational power allowed actuaries to describe many possible outcomes of intricate models. But without the proper perspective, according to author Hilary Salt, decision-makers may focus on the possible rather than the probable—with deleterious effect. The feature concludes with a call to action for actuaries to help the broader public understand what “risk” really means, to provide needed perspective to colleagues in other areas of the business, and to exercise professional judgment in framing model results for all users.

In “How to Survive—and Thrive—Amid Regulatory Change” (page 38), the authors examine what happens when new regulations force a company, and indeed a whole industry, to change how it goes about its business. The financial crisis of last decade has led to new and expanded regulation in the United States and around the world, and new political administrations often come with new approaches to regulatory oversight. The authors discuss how companies can be proactive, make a plan, deal with downstream impacts, and ensure they understand the effects of the regulation on the financial results of the company. The feature then puts these ideas into practice with a case study—the recent adoption of VM-20 for principle-based reserves.

Our final feature this month, “Bayes’ Gift—How Actuaries Discovered (and Rediscovered) a Powerful Analytical Tool” (page 44), offers a rumination on how new technologies and their associated challenges can give old methods renewed vitality. Author Roy Goldman highlights how mathematicians and actuaries have considered interrelated probabilities throughout history, and one elegant formula keeps cropping up—Bayes’ theorem. Historical vignettes show how this once-ridiculed theorem can help explain complex, intertwined probabilities.

One final note: We’re excited to announce the winner of last year’s fiction contest. Please join me in congratulating Steve Abbs, who wrote “The Full Spectrum of Risk” (May/June 2016).

I hope you enjoy this issue, and that the new experiences you undertake this summer lead to much pleasure—and minimal pain.

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