acts of god and man michael r. powers Ruminations on Risk and Insurance ACTS OF GOD AND MAN [...]... reinsurance expertise and comments on the final manuscript, as well as my colleagues Bonnie Averbach, Norman Baglini, and Siwei Gao for their comments on an earlier draft Naturally, all errors in the text are attributable to chance alone ACTS OF GOD AND MAN 1 Living with Risk 1 The Alpha and the Omega of Risk The Significance of Mortality At bottom no one believes in his own death, in the unconscious... business world, professional risk managers often construct extensive lists of pure and speculative risks, including every imaginable type of uncertainty to which individuals and firms are exposed Among pure risks, one finds traditional insurance perils such as fire, wind, theft, disease, and professional negligence, along with more complex hazards such as substandard construction, inadequate security,... unconscious every one of us is convinced of his own immortality — S I G MUN D F REUD (RE FLE CT I ONS ON WAR AN D DEATH, 1 9 1 5) 1 The relationship between human beings and the risks of their world is both ancient and complex.2 It is the stuff of myth and literature as well as philosophy and science Wars, plagues, famines, floods, and earthquakes mark many of the turning points of the Hebrew Bible, and Greek... speculative risk dichotomy that distinguishes between the “aloof” and “quasi-aloof” risks of insurance and the “non-aloof” risks of other financial markets Fundamental Exposures Fortunately, a remarkable simplicity underlies these myriad risks Despite the great number of individual sources of risk, there are only a very few exposures subject to risk These fundamental exposures are life, health, and possessions... formless fear and even panic The appreciation of both exogenous risk and strategic risk is manifested here Thus, the author covers the intersection of insurance with not only probability and statistics, but also phenomena arising from games of strategy Insurance theory, economic theory, accounting, and finance have in many ways grown further apart as disciplines specialize more and more and the sub-disciplines... with Risk, ” provides an overview of how risk impacts our lives, health, and possessions, and then introduces the statistical concepts and methods necessary to analyze uncertainty Part 2, “The Realm of Insurance, ” explores the experience of risk from the perspectives of both policyholders and insurance companies, as well as the role of government as both market regulator and potential “insurer of last... analysis of the human life span There are numerous ways to depict the risk of mortality graphically One is to provide a theoretical histogram of the time of death for a newborn baby selected at random from a human population This would look something like Figure 1.1, which is based upon the 2001 Commissioners Standard Ordinary (CSO) tables approved by the National Association of Insurance Commissioners.6... from one particularly salient (and controversial) factor: race The use of race as an insurance risk classification has been banned in the United States since the 1970s Consequently, no separate CSO tables are published for this variable However, the Centers for Disease Control and Prevention do collect an extensive amount of mortality-related information on the basis of race and ethnicity, which offers... above the age of 5, or stronger than the wear factor, as it is for human beings below the age of 5 (Essentially, human beings below the age of 5 manifest a decreasing mortality hazard rate because the selection effect—that is, the demonstration of greater hardiness that accompanies survival—more than offsets the small effect of aging in this group.) The Hydra-ization of Humanity Note that a constant mortality... possible without the inspiration, guidance, and support of many friends and colleagues In this regard, I am particularly indebted to Verna Dreisbach of Dreisbach Literary Management and Myles Thompson and Bridget Flannery-McCoy of Columbia Business School Publishing I also would like to take this opportunity to thank my mentors in the professional and academic realms of risk, who have been unwavering . acts of god and man michael r. powers Ruminations on Risk and Insurance ACTS OF GOD AND MAN