Another article I found while researching the Society of Actuaries, discusses how to make risk management more attractive to people. The article states that there are certain behaviors to focus on when presenting risk management to customers. Many lessons about managing risk before a crisis arises can be taken from the current financial crisis. We need to balance and manage our risks and stay open to opportunities.
The article presents an interesting valuation of money and risk problem which I have seen previously in my finance and RMI classes. Q: If people are given the option of choosing $7000 or taking the opportunity to have an 80% chance of receiving $10,000 and a 20% chance of receiving nothing, the majority of people will choose the certain outcome of $7000. The expected value of the risky outcome is higher, but people are afraid of the loss. People focus on a loss frame of mind instead of a gain frame of mind. The article states risk managers should help switch the focus so companies can have an investment goal and higher future gains. Expected value is key to changing people's minds.
People also assume the more risky option is what you hear about more. For instance, an airplane crash is less likely to happen than a car crash, but people are more afraid of a plane crash because they end up on the news. Airplane crashes, however, are less likely and more unexpected than a car crash. The unexpected always catches our mind more and tends to become our focus. Therefore, if this recession was unexpected to some people and companies, those are the ones who risk managers should be seeking out to offer safe options. This is the ideal time to catch the business of those who were caught off-guard. They need the risk management the most.
Some people also don't focus enough on the future and focus more on what is happening to them at this moment. For example, most people will take $1000 today rather than $1500 in two years. I have taken finance classes and AS classes enough to know the present value of the future payment is more than the present value of $1000. It is just the uncertainty of the future payment that turns people away. Risk managers and actuaries can help people calculate these values to improve their investments. Actuaries and risk managers need to help people in this time of need to develop plans and educate them on minimizing the costs of their risk. People need to have financial plans to encourage security.
http://www.producersweb.com/r/SOA/d/contentFocus/?tk=2,f,23991,home&adcID=e6cca8ddd22a2ca79d25c6a845e9ff75&apID=0&aTp=3
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