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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.

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    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:

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    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.

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    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)

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    Last Updated on April 17, 2019

    10 Essential Soft Skills That Will Help Advance Your Career

    10 Essential Soft Skills That Will Help Advance Your Career

    What’s the secret of professional success? Some of it lies in the mastery of your discipline and all the technical skills you have to carry out your job; but a much bigger part lies in the soft skills list you possess.

    Soft skills are your people or relationship skills—how well you get along with others and your ability to communicate and collaborate—as well as the personal characteristics you bring to the job, such as optimism, a can-do attitude and the motivation to work hard. These skills are not always easy to point out, but their absence can cause serious problems and negatively affect the whole work atmosphere.

    They say that hard skills will help you get the job, but soft skills will help you get along—and get ahead. With that in mind, here’s the top-10 essential soft skills list to help you advance your career.

    1. Communication Skills

    Communication skills are hands-down the most sought-after soft skill that bosses want, and this one ability covers a lot of ground.

    To communicate well, you have to listen carefully, interpret the context of the conversation, express yourself clearly, persuade others of your point of view, check your body language and use an engaging presentation style that won’t intimidate or bore your audience. That’s a big ask!

    Your personality traits can influence the way you communicate with others. For instance, some people get straight to the point and center their arguments around facts and logic; others are cooperative and sensitive to how others feel. Both these approaches are equally valuable but there can be misunderstandings if you don’t understand where the other person is coming from.

    Taking a comprehensive personality test can help you understand why you communicate the way you do and where your blind spots are. It can also help you understand other communication styles is so you can tailor your communication to the person you’re dealing with.

    After all, connecting with your conversation partner is the hallmark of good communication.

    2. Flexibility

    Change is an essential part of any business. Companies need employees who are flexible enough to work with new initiatives, open to new ideas, and generally are able to tough it out when things don’t go as planned.

    Research has found a link between job performance and flexibility over the long term because there will be times when you have to step outside your routine and rise to fresh challenges that didn’t exist before.

    Being flexible doesn’t mean you have to hop into a new task or job role like an expert. Rather, it’s about showing you’re willing to accept new responsibility and learn different things.

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    Bosses look for people who are prepared to step outside their comfort zones and are open to alternative solutions when their first idea doesn’t work.

    3. Being a Team Player

    Working on a team can be challenging but learning to do it well can definitely help you get ahead in your career. Employers look for people who can negotiate, cooperate and manage conflicts with other people to achieve a common goal. That includes the ability to build lasting relationships with customers and clients.

    What makes a good team player? Essentially, it’s someone who knows the goal and knows her role. Employers look for evidence that you know your strengths, your responsibilities and how you can best contribute to the team, then put those skills into action by sharing ideas and communicating in a respectful manner. That’s the definition of being a good team player.

    This is another area where taking a personality test can help you get ahead. When teams work together, each member brings a unique set of skills and qualities to the group. Research has shown that different combinations of personalities affect how teams collaborate and how productive they are.

    Knowing who you are, and how you work on a team, can drive new insights and open the door to better teamwork.

    4. Positive Mental Attitude

    There are plenty of things you can’t change at work, like the people you work with or the fact that the printer is broken again. The one thing you can change is how much you let these things bother you.

    Bosses like people who are calm, rational and upbeat—those who diffuse tensions in the workplace, not get all grouchy and go around slamming doors.

    Studies show that people who maintain a sunny disposition have better relationships at work, are happier in their jobs and make better decisions than those who whine and complain. Some suggest that a positive mental attitude can also make you live longer—which means it’s beneficial for every area of your life![1]

    It’s not always easy to keep a “glass half full” mentality when work is stressful and the deadlines are piling up. But there are some things you can do to help maintain a positive attitude. Laughing at your unfortunate circumstances keeps the work environment positive, and taking “sanity” breaks can help you keep your cool in high-pressure situations.

    Managers look for positive mental attitude in a team member that is ready for a promotion, so it really does pay to keep your cool in challenging situations.

    5. A Strong Work Ethic

    People with a strong work ethic are committed to the role, persevere when things get tough and are inspired by challenge. These people are ambassadors for the organization, and will always be seen as top talent and ideal candidates.

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    If you can exhibit this skill, then expect to be seen as a great candidate, eligible for new opportunities and positions throughout your career.

    Since a strong work ethic can mean different things to different people, it helps to show specific examples of your exceptional work ethic during a performance appraisal or interview. For instance, you might talk about:

    • A time when you persisted in the face of challenges and did not shy away from hard work.
    • How you volunteered to help with projects even though these tasks did not form part of your job description.
    • The networking, workplace learning and skills betterment you’ve undertaken, which shows ambition and drive (people with a strong work ethic have those qualities in spades).
    • How you own your mistakes and never, ever point the finger of blame at others.

    For help with building a strong work ethic, check out these tips: How to Build a Reliable Work Ethic

    6. Public Speaking

    Who’s terrified of public speaking? Pretty much everyone, since public speaking is America’s number one fear, ahead of death at number five and loneliness at number seven.

    Yet, according to Warren Buffett, mastering this one skill you could increase your personal value by 50 percent.[2] That’s huge!

    If you’re not natural at public speaking, you’re in good company. Buffett had to work hard to overcome his stage fright and once dropped out of a public-speaking course before it started—because he was afraid of public speaking! He eventually realized that he needed to build up his confidence by just doing it; over and over in front of small groups.

    For a more structured approach, Toastmasters International teaches public speaking and leadership skills through a variety of pathways. Membership of this non-profit looks good on your resume but the real payoff will come when you can put your newfound skills to use on the job or in the interview room.

    Or, you can check out this advice: The Ultimate Public Speaking Tips to Hook and Impress Any Audience

    7. Integrity

    From a manager’s point of view, the two integrity skills that will set you apart are:

    • Always doing what you say you will do
    • Owning an error instead of minimizing or hiding it

    …even when no one is around to check up on you.

    There are lots of people who have climbed the ladder without scruples, but they are not the people who others trust, respect and support when promotion time comes around.

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    Behaving with integrity is a safe and consistent way to enhance your reputation and achieve your professional goals.

    8. Managing Your Time

    Phone calls, texts, Slack pings, meetings, huddles, side projects, multitasking—we are busier today than any generation before us. There’s no denying the workplace is an incredibly distracting place to be.

    A lot of us have traded effectiveness for busyness which we wear as a badge of honor, both as a proxy for productivity and to show our value to the company. But what bosses want, what they really, really want, is someone who actually gets stuff done on time.

    Time management is not merely the art of being on time, but of managing your time so you focus on the projects that really matter and add value to the business. This means prioritizing well, sticking to schedules, delegating, and not getting distracted by tasks that are easier to perform or less important. It means planning ahead and learning when it’s appropriate to say no.

    Time management can be a tough skill to maintain, but not a difficult one to pick up. Monitor your actions for a few days—how long do your tasks take to finish? What’s interrupting you? What causes you to lose focus? Once you have the answers to these questions, you can set a schedule for yourself to make sure you’re spending your time wisely and this valuable asset is never wasted.

    These 20 Quick Time Management Tips to Super Boost Your Productivity are also great to try.

    9. Assertiveness

    In any workplace, you typically will find people with the following conflict styles:

    • Passive: Those who go out of their way to avoid conflict.
    • Passive-aggressive: Those who express their negative feelings through actions rather than words.
    • Aggressive: Those who respond to conflict in a hostile and rude manner. These people get their opinion heard but they won’t make any friends in the process.
    • Assertive: People who stick up for their rights while still respecting the rights of others.

    Managers look for assertiveness above all other styles because it allows decisions to be made without conflict or alienating people.

    How do you use this information for yourself?

    It starts with understanding your personality so you can anticipate how you will react when conflict arises and address your own shortcomings. Then, you can start influencing the team for top results, and securing your own career advancement in the process.

    Learn how to be assertive and gain respect:

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    How to Be Assertive and Stand up for Yourself the Smart Way

    10. Creative Thinking

    LinkedIn recently analyzed over 50,000 skills that employers search for when looking for candidates to find out what skills are currently in demand.[3] Taking the number-one slot on the 2019 soft skills list was creativity: the ability to solve problems and think outside the box.

    Creativity is about bringing fresh, and sometimes unorthodox, ideas to the table. This helps companies to innovate, and companies that do not innovate will not survive very long.

    How do you showcase your creative thinking skills? The golden rule is to participate.

    Be brave and share your ideas during group brainstorming sessions. Volunteer to run a society, networking event or recruitment drive. Ask “what if” questions: “What if we add this information to the client welcome pack?” “What if we eliminate step 3 from the process?”

    These activities demonstrate that you’re prepared to go beyond “business as usual” towards creative problem solving—an ability that will serve you every day, all throughout your career.

    You can learn to unleash your creativity power:

    What Is Creativity? We All Have It, and Need It

    Final Thoughts

    The good news? Every item on this soft skills list can be learned. Although you may feel lacking in certain areas, taking an inventory of your strengths and weaknesses will allow you to focus in on the areas that you’ll benefit from developing.

    So take an inventory of your personality, skills, and talents. This will give you a baseline for your communication style, attitude to change, conscientiousness and more. You can then identify your weak areas and develop strategies for improving your team-building, assertiveness and conflict skills.

    The better news? The effort is worth it. Developing your soft skills opens the door to a new job or a promotion, and helps you succeed once you get there.

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    Featured photo credit: Rachael Gorjestani via unsplash.com

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