Advertising
Advertising

Risk: The Morbidity Principle

Risk: The Morbidity Principle


    (Editor’s Note: The following is an excerpt from the book Acts of God and Man: Ruminations on Risk and Insurance by Michael R. Powers. Powers is professor of risk management and insurance at Temple University’s Fox School of Business, and distinguished visiting professor of finance at Tsinghua University’s School of Economics and Management. He serves as chief editor of the Journal of Risk Finance and the Asia-Pacific Journal of Risk and Insurance. In the book, Powers discusses how risk impacts our lives, health, and possessions and proceeds to introduce the statistical techniques necessary for analyzing these uncertainties. This excerpt (originally posted on the Columbia University Press Blog) is from the chapter The Alpha and the Omega of Risk: The Significance of Mortality, where Powers discusses the morbidity principle. For more information please visit http://www.cup.columbia.edu, and follow the author on Facebook.)

    In today’s 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, technological obsolescence, and political instability. Speculative risks include real estate, common financial securities (stocks, bonds, commodities, etc.), and interest and currency-derivative products, as well as market- specific changes in the prices of raw materials, human capital, and end-of-line goods and services.

    Advertising

    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.

    One then might ask: Why should we be concerned about the quality of life? I would argue that the following two principles provide the answer:

    Advertising

    1. The Morbidity Principle. An individual/corporation/society whose quality of life is damaged will have a greater chance of imminent death.
    2. The Lost-Gratification Principle. An individual/corporation/society whose quality of life is damaged may not have the opportunity to enjoy recovery of health or restitution of possessions before death occurs (i.e., “a good quality of life today is worth more than a good quality of life tomorrow”).

    In short, the life exposure underlies all other types of exposures. For individuals and societies, the morbidity principle would have been particularly evident in the Old Stone Age, when human beings had developed useful tools, but were still primarily hunter- gatherers. At that time, quality-of-life exposures, although they existed, could not be separated easily from the life exposure because the loss of health (through injury or illness) or possessions (clothing, shelter, or hunting implements) would increase significantly the chance of death in the near future. Hence, in many cases loss of quality of life would be tantamount to loss of life.

    The morbidity principle continues to apply to individuals and societies today, but not as dramatically. Despite the various “safety nets” that modern governments provide for their more vulnerable citizens, it is still an empirical fact that the injured and ill, as well as the economically poor, die at faster rates than others. This is also true for societies at large, as can be seen in the declines of certain populations in Eastern Europe since the dissolution of the Soviet Union. With regard to corporations, reductions in revenue, market share, and/or profitability are in many cases harbingers of bankruptcy. Although a cursory review of today’s financial products might give the impression that quality-of-life exposures actually overshadow the life exposure — after all, the only financial product that specifically addresses mortality is life insurance — the lost-gratification principle belies such a conclusion. If anything, the role of mortality is difficult to discern because it is so prevalent that we tend to overlook it.

    Advertising

    The life exposure underlies all traditional insurance policies, whether held by individuals or commercial enterprises. This is because the policies are designed to provide reasonably quick medical attention or restitution of property, presumably before the policyholder’s life terminates. In addition, the life exposure is fundamental to all financial transaction risks. Lenders, whether they be individuals, corporations, or government bodies, must be compensated for the possibility that they will cease to exist before their loans are repaid; and the early death of a borrower can transform this possibility into a certainty. In other words, mortality is the essential reason, even in an economy with no expected change in either income or prices, “a dollar today is worth more than a dollar tomorrow,” and thus the reason the nominal risk- free rate of return (oft en taken to be the nominal return on a U.S. Treasury bill) must be strictly greater than 0.

    (Photo credit: Dice rolling on Business via Shutterstock)

    Advertising

    More by this author

    Have You Ever Wished Your Kids Will Beg To Do Their Chores? How to Plan Your Life Goals and Actually Achieve Them in 7 Simple Steps 20 Things People Regret the Most Before They Die Overcoming The Pain Of A Breakup: 3 Suggestions Based On Science Quit Your Job If You Don’t Like It, No Matter What

    Trending in Work

    1 7 Strategies to Keep Employee Motivation High 2 How to Become Smarter: 21 Things You Can Do Daily 3 7 Powerful Steps to Achieve Career Success 4 The Savvy Employees Guide to Asking for a Raise 5 How to Master the Art of Stress Free Work

    Read Next

    Advertising
    Advertising
    Advertising

    Last Updated on December 10, 2019

    7 Strategies to Keep Employee Motivation High

    7 Strategies to Keep Employee Motivation High

    Highly motivated employees are essential to the success of any business. Most people spend a third of their lives at work.[1] That’s a significant amount of time away from home, apart from the people who make us happy and the things we love to do. So keeping employee motivation high is essential for creating an office environment that gets the best out of our people.

    But do you know what motivates your people?

    It’s simple:

    • Is their work stimulating?
    • Does it challenge them?
    • Is there room to grow, a promotion perhaps?
    • Do you encourage creativity?
    • Can they speak openly and honestly with you?
    • Do you praise them?
    • Do you trust your staff to take ownership of their work?
    • Do they feel safe in their work environment?
    • And more importantly, do you pay them properly?

    Every one of these factors contributes to the general happiness of your employees. It’s what motivates them to come into the office each day and work hard, hit goals, and get results.

    In contrast, an unmotivated employee is typically unhappy. They take more sick days, they’re not invested in seeing your business succeed, and they’re always on the lookout for something better.

    Stats show that 81 percent of employees would consider leaving their jobs today if the right opportunity presented itself.[2] So it’s up to you to set aside time and energy to create a work environment that benefits every one of your employees.

    These seven strategies will help you motivate your people to consistently deliver quality work and, more importantly, to stick around for the long term.

    1. Be Someone They Can Rely On

    You rely on your people to turn up to work each day, to come to you when they have a problem they can’t solve, to be honest, and to always engage professionally with customers.

    Advertising

    But this is not a one-way street. You, too, need to be someone your team can rely on. They trust you to have their backs when a client is unreasonable, to know that the decisions they make are in your best interest, and to make good on your promises.

    If you say you’ll attend an important meeting, be there. If your company makes a profit and you’ve said you’ll pay a bonus, pay it. The goodwill of your people is something you never want to test, let alone lose.

    Be reliable; it’s astounding how much this motivates your people.

    2. Create an Awesome Company Culture

    There’s no denying that company culture trickles down from the top. Your leadership and attitude massively influences the attitudes, work ethic, and happiness of your staff. If you’re always stressed-out, overly demanding, and unreasonable, it’ll create tension in your office which will adversely affect your employees’ motivation levels.

    In fact, the HAYS “US What People Want Survey” found that 47 percent of staff who are actively looking for a new job, pinpoint company culture as the driving force behind their reason to leave.

    So if you have high staff turnover, you need to determine whether your company culture might be the motivating factor behind your churn rate.

    Here are four ways to build a culture that keeps your employees highly motivated.

    • Be conscious of the image you present. Your body language and attitude can positively or negatively impact your employees. So come to work energized. Be optimistic, friendly, and engaging—this enthusiasm will spill over to your people and motivate them to be more productive and efficient.
    • Appreciate your people and be reasonable. Celebrate your team’s achievements. If they’re doing a good job, tell them. Encourage them to challenge themselves and try new things. And reward when deserved. If they’re struggling, help them. Work together to find solutions and be a sounding board for their ideas.
    • Be flexible. Give your people opportunities to work remotely—this is highly motivating to staff, particularly millennials. They don’t want to be battling traffic each day on their way to work. They don’t want to miss their kids’ baseball games or ballet rehearsals. Stats show that companies that offer flextime and the ability to work from home or a coffee shop have happier and more productive employees.
    • Create employee-friendly work environments. These are spaces that inspire and ignite the imagination. Have you ever been to Google’s offices? No headquarter is the same. From indoor slides and food trucks, to hammocks, and funky work pods on the wall, gaming rooms, and tranquil interior gardens, there’s something for everyone. It’s a space where people want to be, catering to their need for creativity, quiet, or team building; you name it.

    So take a look at your company culture and ask yourself, Is my business an attractive workplace for talented professionals? Does it inspire commitment and motivate my people? What could I do to improve my company culture?

    Advertising

    3. Touch Base with Your Team Weekly

    Make time for your people, whether you run a remote business or work in an office, set aside time each week to talk to your people one-on-one. It’s non-negotiable.

    When there’s an open line of communication between staff members, work gets done. Don’t believe me? A study by Gallup found that 26 percent of employees said feedback from their leaders helps them to do a better job.[3]

    Your people want to feel trusted. They want to take ownership of their work, but they also need to know that when they have a question, they can reach out and get answers. If you’re unwilling to make yourself available, your team will quickly become unmotivated, work will stagnate, and your business will stop growing.

    So block off time on your calendar each week to touch base with your people, even if only to let them know that what they’re working on matters.

    4. Give Them the Tools They Need to Do Their Jobs Well

    Imagine trying to run your business without electricity. How would you contact your clients? What would happen when your phone or computer battery died?

    Technology is super critical to the success of your businesses. It allows you to work more efficiently, to be more productive, and to handle matters on-the-go. That’s why you need to give your people tools that will make their jobs easier.

    Make sure their equipment is in good working condition. There’s nothing more frustrating than a laptop that takes ages to boot up. It’s got to go. Replace outdated software with new software. Don’t make your designer work in Coreldraw; give them access to the most up-to-date version of Adobe Creative Suite. Take it a step further and buy them a subscription to Shutterstock or Getty Images.

    Make working for you a pleasure, not a pain; and watch your employees’ motivation levels rise.

    Advertising

    5. Provide Opportunities to Learn and Upskill

    Would you believe me if I told you that 33 percent of people cite boredom and a need for new challenges as the top reason for leaving their job?[4] If you want to retain your talent, you need to upskill.

    Thanks to technology, we live in a rapidly evolving world that demands we change with it. A copywriter is no longer just a writer; they now need to be experts in SEO, Google Adwords, CRMs, and so much more.

    A pastry chef needs to be a food stylist, photographer, and social media manager. An entrepreneur needs to be a marketer—or at least take ownership of the marketing message for their business—if they hope to scale.

    Technology makes all of this possible. No matter your location, your people can continuously expand their knowledge and gain new skill sets—something that’s highly motivating to employees. They want to know that there are opportunities to grow and develop themselves.

    If you won’t invest in your people, then your business becomes just another job to tide them over until they find where they truly belong. So be the company that sees value in developing its people.

    6. Monitor Their Workload

    Overworked employees tend to be unproductive and unhappy. Your people cannot be at full capacity every day, month to month. Something’s got to give. They’ll become deflated and their work will eventually suffer, which will negatively impact your business.

    What I like to do is implement a traffic light system. It helps me to keep a finger on the pulse of my business. So there’s red, yellow, and green:

    • Red means they’re fully loaded.
    • Yellow means they’re busy, but they can potentially take on more.
    • Green means they haven’t got enough to do.

    I use this traffic light system because I don’t want my team members to be stressed out of their brains all the time. If they are, they won’t make good decisions and they won’t do good work.

    Advertising

    If my people are regularly overloaded, I have things to think about. Perhaps I need to hire a new person to help ease the load or take a closer look at what projects are good to go, and which can take a back seat.

    And this is why #3 is essential. If I’m regularly engaging with my people, I’ll know that while they’re coping with their workload, it is impacting their performance and health, and I’ll take action.

    7. Don’t Mess Around with Your Employees’ Pay

    Never mess around with your people’s salary. As a business owner or high-level manager, it’s easy to forget that most people live from paycheck to paycheck. Delayed compensation can mean a missed bill payment, which could result in costly penalties they can’t afford or hits to their credit score.

    So it’s your job to ensure that you pay your people on time.

    The Bottom Line

    A motivated team is an asset to any business. These people never give up. They get excited about coming to work each day and can’t wait to test a new theory or tackle a particularly tricky challenge. They’re proud of the work they do. And more importantly, they have no reason to leave.

    Wouldn’t you rather be part of their success story than the business that drove them away?

    More to Motivate Your Team

    Featured photo credit: Emma Dau via unsplash.com

    Reference

    Read Next