Matt Moore on Analyzing Highway Safety

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Why did I do this show? Matt is a very common speaker at actuarial conferences and he’s has fantastic, analytically driven insights into automobile safety. It’s the biggest risk to us all!

What did I learn? I learned about all the ways that AI fails on self-driving cars. And that speed is really the big problem on highways!

What was my favorite part? Having Matt dodge questions about what those JD Power awards are all about!

Monica Mason on Catastrophe Modeling

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Why did I do this show: Catastrophe modeling is a big part of what makes property reinsurance the most dynamic and innovative market in the insurance industry. Yet there are a lot of misconceptions to explore!

What did I learn: I learned that the core value of the catastrophe modeling vendors is their scrubbing of a variety of data sources.

What was my favorite part? I got to talk about how the models aren’t really all that important, ironically enough!

Melissa Perri on Escaping The Software Build Trap

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Why did I do this show: I had been fascinated by how great software is made and what really makes great tech companies so much better at software than anyone else. This show came about as part of me trying to figure out how to think about technology.

What did I learn: I learned way too much and had to recognize what I learned only over the years following this interview. In a certain sense I did learn about software but I wasn’t ready to learn about it. I needed to try to build real software at a real software company to genuinely understand what Melissa taught me. So the thing I learned was that we can’t always learn the easy way.

What was my favorite part: This was the beginning of me figuring out that strategy is about constraints. Melissa’s book is entirely about how to effectively constrain an organization to make great things. It’s a very deep thing that I am still working to grasp!

Stan McChrystal on Risk and Leadership

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Why did I do this show?

I’ve been thinking a lot about the relationship between leadership and risk. Then holy cow I learn that one of the most celebrated military leaders in a generation wrote a book about leadership disguised as a book about risk!? An incredible opportunity for me!

What did I learn?

I learned that the most distinguishing characteristic of Special Forces is (what I call) their moral clarity. An astounding and profound thing.

What was my favorite part?

Definitely Stan’s reaction to how President Bush judges leaders. Deeper than it seems!

Ty Sagalow on the Making of Lemonade

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Why did I do this show? Lemonade is a legendary insuretech success and Ty was a co-founder. For those of us interested in insurance and technology this one was a no-brainer!

What did I learn? I learned that Ty was involved in a lot of insurance innovation in his career. The most common way new insurance products fail is not that they are underpriced and blow up a company, it’s that nobody gives a damn and sales are near-zero. Very important!

What was my favorite part? I loved digging into the superpowers of awesome engineering and product teams and Lemonade has those in spades!

Michael Tanzer on COVID predictions for Insurance

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Why did I do this show?

Michael is one of those finance people that I’ve envied ever since business school. Effortlessly seeing to the heart of all kinds of opportunities and ideas in investing. I have no idea how these people do this, they’re an awfully intimidating bunch. I still do not really know how to connect insurance prognostication to reasonable opinions about the path of the financial markets more generally so this is an attempt to analyze them all together. An experiment!

What did I learn? There are a whole series of interlinked price signals on insurance companies that I have zero visibility into. Spreads on certain preferred offerings against equity, say for Arch Capital? How interesting!

What was my favorite part? You’ll see that this is mostly an interview of me by Michael, actually. I can’t say it’s my favorite part to be interviewed but it’s always good to ‘cross the table’ and have a very smart person ask very good questions! Challenging stuff!

Christy Ford Chapin on the History of Health Insurance in America

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Why did I do this show? I recorded this when I was working at a health insurance software startup and looking for a way to deeply study health insurance in the US. Boy did Christy deliver!

What did I learn? The most important insight in the book is nobody wanted the system we eventually got, except maybe the doctors. Insurers hate the idea of universal, compulsory insurance because it forces them to underwrite very difficult risks, that otherwise would never be able or want to buy insurance. Doctors knew that in other systems their ability to control patient care would be curtailed by a universal health care provider. Insurers offered the possibility of a fractured payor system that would not be able to dictate procedures.

What was my favorite part? My favorite part was actually getting to experience first hand Christy’s rapturous recital of all kinds of minutiae she uncovered as part of her research. It really takes a certain kind of talent to slot through all the materials she did to do her work. I was in awe of it.

Mary Hirschfeld on Aquinas and the Market

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Why did I do this show:

I’ve never been one that ‘into’ studying schools of moral thought but one thing I’ve noticed about the insurance business is that we do it all the time. For example, competitors don’t win by being good, they win by cheating and lacking in moral virtue. Success and failure both are moral failings in insurance.. how weird! This is one of my fundamental puzzles of insurance and so features in the podcast!

What did I learn:

There is a really dark side to Mary’s philosophy, as she says there is no such thing as societal moral progress, we’re really the same as we’ve always been. I don’t like this! But there is also a deeply uplifting side which is that for individuals moral progress is not just possible but essential to life. Surely our technology for helping the individual is aggregating over time like all tech?

What was my favorite part:

Learning that Aquinas is a kind of intellectual trump card in Catholic thought. If you can reliably demonstrate that you’re interpreting his philosophy with your position, you win!

Otakar Hubschmann on AI In Reinsurance

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Why did I do this show?

I have to admit, I’m a bit skeptical of AI in Reinsurance! I find Reinsurance to be very much about medium sized datasets and lots of human judgment, can we do anything better than that?

What did I learn?

One of the everpresent lessons in software is that there are always problems to solve. Every question is one of prioritization of resources and even relatively modest improvements in processes with big $$$ can be very valuable!

What was my favorite part?

Talking real about AI and reinsurance with someone who has legit experience!

Three Puzzles In Insurance

In my career I noticed three strange things about insurance that made it stand out among other industries:

  1. Why does nobody ever want to buy insurance yet it is a massive industry? 
  2. Why do companies and individuals crave outside guidance (regulators, peers, rating agencies, etc) when making decisions about risk?
  3. Why was the discourse in the business so moralistic? 

I used to think insurance was strange, now actually I’m coming to think of insurance as the most human of all business pursuits and it’s all other commercial activity that’s weird.

As a result, I think the deep insight we’ll gain into insurance by answering each of these questions will also reveal much about human nature and, I think, a view into how our culture will evolve over the next decade, century and even coming millennia (assuming we don’t kill ourselves!).

So here are my answers as they stand today!

1. Why insurance exists despite nobody wanting it

I sometimes am surprised I don’t get more pushback on the premise of this statement. In some sense insurance is buying nothing (protection for some imaginary thing that hasn’t happened yet) for something (money). No right thinking ape would ever do such a thing and we are right to hate insurance and be very skeptical of its purchase. Even when we think it’s a good idea, do we really know? Daniel Kahneman won the Nobel Prize for his work showing how clouded our personal judgement is about risk.

But insurance exists because in another sense we actually know very well how poorly we understand risk and our culture has evolved systems for compelling us to protect ourselves. Insurance as we think of it today is just one feature embedded within a whole universe of risk management techniques. They mostly all, however, boil down to one simple concept: our cultural compatriots, our community, protect us from risk. It does this by your neighbor offering a couch if your heat conks out in the winter, by your spouse forcing you to buy life insurance or by the nation state mandating liability insurance for your use of the most dangerous tool humans have ever created, the automobile.

In short we buy insurance because it’s compulsory. The amazing thing about that is that we tolerate being compelled; we are forced to be our better selves by our community.

2. Why do companies and individuals crave outside guidance (regulators, peers, rating agencies, etc) when making decisions about risk? 

I noticed this when negotiating with insurers about how much capital they should hold (in a mix of money and reinsurance). Nobody knows how to answer the question, really. How do you tell how much risk you should take? How do you even think about risk? Who takes it? Wouldn’t it be better if someone just told you the answer?

There are exceptions to this rule in the form of some folks who have unusual conviction in their own judgement. Those types often wind up as entrepreneurs and make these kinds of decisions all the time. The rest of us, however, freeze in the face of this question, and seek answers elsewhere.

The answer to why is that we have literally evolved to think this way. By think I actually mean *not* think, as we usually define ‘think’, and instead mimic authority figures when confronted with uncertainty. Here I’d point the studious reader to a book by Joe Henrich or perhaps my podcast with him.

The key idea is to realize that the world is literally inconceivably complex and a single human mind cannot figure everything out for itself. We use culture as a playbook for thriving in the world, letting us use all kinds of technology we don’t understand by just copying others. This is quite literally the secret to Humanity’s dominance and risk decisions are but one teeny, tiny application of it. Even the most contrarian and independent minded entrepreneur is a mindless, mimicking automaton in the context of the amount of true understanding he/she has for how to navigate the world.

3. Why are insurance people so moralizing?

I do feel the need to defend this statement for a sec. One thing I noticed fairly early in my career (and it always made me bristle) was how viciously insurance underwriting teams criticize their competitors.

Competitor turning a profit? Must be cheating. Competitor lost money? Must have tried to cheat and failed.

Both success and failure are the result of moral inferiority. Insurers live in a continuous test of character. Are you sacrificing the future for a quick buck today? By our nature we are critical of others we don’t know but in insurance this human quality is dialed up to a white hot intensity.

The investigation into morality is probably one of the more surprising undercurrents of my podcast given its insurance focus, even to me! But this behavior really puzzled me and it was a while before I finally started locking onto an answer. And the beginning of the answer came from the work of another anthropologist, the little known Mary Douglas, in particular in her book with Aaron Wildavsky, *Risk and Culture*. I devoured that little book, it was like finding a barrel of water on a desert island.

The key here is that questions of uncertainty are resolved through social decision making, as I mentioned above. We have a term for social decision making processes, it’s called politics. And politics, in its purest form, is rooted in morality. As Jonathan Haidt teaches us in the excellent *The Righteous Mind* the fiercest political debates reduce to competing moral frameworks, to differences of emphasis of values we all mostly subscribe to. The piece that I could fill in after reading Mary Douglas was that morality is the foundation of our technology for making decisions about risk. Moral systems are what guide us in figuring out which risks to focus on and how do deal with them. In ancient societies this means rain dancing and food taboos and in modern societies it can mean what kind of insurance to buy!

I have much more to say on these topics, in particular about how we can use these insights to make a better society. Stay tuned!