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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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    Published on October 8, 2019

    How to Advance Your Career (and the Big Mistakes You May be Making)

    How to Advance Your Career (and the Big Mistakes You May be Making)

    The late writer William S. Burroughs once said that “When you stop growing, you start dying.” It might have a morbid undertone, but it’s one hundred percent true in terms of one’s career.

    The days of finding a job with one company that you can stick with for 30 years, and simply relax as you move up its company escalator are few and far between in today’s world. This isn’t necessarily bad news. On the contrary, it means that you’re the one in charge of shaping your career advancement.

    By putting these principles and behaviors into practice, you’ll begin to see how to advance your career quickly. Ready? Let’s get started…

    1. Define What Success Is for You

    There’s no right or wrong definition of what success in your career looks like. The important thing is to figure out what success looks like for YOU. It might, and probably will, change along the way, but if you don’t have some sort of milestone on the horizon, then you won’t know which direction to go in.

    Think about success in your career in terms of one year, five years, and 10 years. Once you have that, it’s time to lace up your boots and get to work.

    2. Learn How to Develop and Follow a Plan

    Nobody just stumbles upon success accidentally. Sure, they may stumble upon breakthroughs or new methods accidentally, but all success stories have one thing in common — a plan.

    Establish a timeline for the things that you want to achieve in your career in the next year, five years, 10 years, and so on. Consider the skills that you’ll need to learn to make these things happen and work on acquiring them.

    3. Surround Yourself With Those Better Than You

    It’s a rule of thumb among musicians that if you want to get better, then you need to get out of the bedroom and play with people who are better than you.

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    By surrounding yourself with people who are better than you and where you want to be, you’ll not only see how these people climbed to where they are in their respective fields, but you’ll learn from them and naturally want to push yourself to be better in your own job as well.

    4. Seek Out a Mentor(s)

    A mentor will not only be able to help you refine and reach your career goals, but will be invaluable in landing promotions and finding unadvertised job openings.

    One unique approach is to work on fostering a relationship with a mentor both within and outside of your company. This will help in giving you different perspectives as you rise up through the ranks in your company and career overall.

    5. Stop Wasting Your Mornings

    You may not think you’re a morning person, but if you can learn to be one, you’ll thank yourself 10 years down the road.

    Prepare a to-do list of tasks that you want to accomplish the day before and work on knocking them out for at least one hour before you respond to morning emails. The problem with responding to emails first, is you’re giving your attention to somebody else’s agenda, instead of plotting your own course for the day.

    6. Arrange or Attend a Networking Party

    If you’re attending networking events simply because you might get a few free drinks, you’re doing them wrong. These events are great for meeting new people and forming relationships. Your goal shouldn’t be to get hired by the end of the night, but to simply make a good impression by being friendly and authentic. So what’s next?

    Reach out a few days later via email or on social media to follow up and connect!

    7. Pick Up Some New Skills

    Nobody wants to be the old dog that can’t learn any new tricks. To move up in your career, you’re going to likely need to pick up new skills along the way. Maybe your company offers on-the-job training or you have the option of taking online classes at night.

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    By learning new skills, you’ll not only be able to expand upon what you can already do, but you’ll make yourself more valuable to your employer and future employers.

    8. Exploit the Benefits Already at Your Disposal

    Remember what we just said about the possibility of your company providing on-the-job training? Take advantage of these sorts of benefits!

    If you’re working for a company that allows you to job shadow other employees or has company mixers, you should attend these. They not only allow you to develop your skills within the company, but show seasoned executives within your field that you’re interested in more than just clocking in for a paycheck.

    9. Make Yourself Indispensable

    Good help is hard to find and employers want to retain outstanding employees. If you can learn to make yourself indispensable to your company, you’ll not only communicate that you’re successful, but will have a lot more job security. What’s this entail though?

    It’s actually not all that difficult. By being reliable, adapting to new challenges, and holding your own work and performance to a high standard, you’ll stand out among your peers and others will take notice. Easy enough, right?

    10. Get Off the Fence

    People who advance in their careers are those who don’t shy away from voicing their opinion and stand up with authority when the opportunity arises.

    If a problem arises in your company and you think you might have a solution or are willing to work to find one, then let others know. Employers value and promote problem solvers. Start off with something small and work your way up towards tackling more difficult tasks and projects.

    11. Don’t Wait for More Responsibility, Ask for It

    If you want more responsibility in your job, then be open about it with your manager. Your manager may be so busy with their own work that they weren’t aware you were looking for more challenges.

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    Just make sure you can handle it and that you already show strong performance in your current duties. And if your manager doesn’t seem supportive about offering you more responsibility, well, then it could be time to look for new employment.

    12. Stop Wasting Time on What You Don’t Want

    If your career goals start with “I should do this…” there could be a problem. This kind of language in referring to goals can doom them to failure because the want isn’t there.

    Consider using the RUMBA method (Reasonable, Understandable, Measurable, Behavioral and Agreed) when setting your goals. That “agreed” part should really be “want.” By going after career goals that you actually want to accomplish, you’re much more likely to achieve them.

    13. Seek Out Feedback and Apply It

    Simply doing your job might not always push you up in your career advancement. Too often, employees just assume that their bosses will notice their performance strides and reach out when the time is right to advance.

    Don’t be afraid to regularly seek out feedback and ask for constructive criticism. It not only shows that you value your manager’s opinion but demonstrates that you care about your job and want to become better in your chosen field.

    14. Pick Your Bosses Wisely

    Advancing in your career can move a lot quicker if you’re working for the right people. If your boss isn’t any good at their job or doesn’t value you, then moving up could become difficult.

    A great boss though, will be able to help you capitalize on your strengths and be an advocate for your success. If there aren’t any strong developers of talent in your management chain already, then look around for some and seek them out as mentors.

    15. Learn to Develop Your Sense of Timing

    The odds of asking for a promotion or raise are in your favor with over 70 percent of respondents to a survey from PayScale reporting some success. One thing to keep in mind that can make all the difference is when you ask.

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    Some corporate cultures may prefer that employees reach out about advancement during their annual review, but maybe you work for a more free-spirited startup. The best approach may be to take note of when others advance and ask about how the organization handles employee development.

    16. Work Hard and Promote Yourself

    Working hard and delivering a solid job performance are the keys to advancing in your career no matter what field you’re in. This doesn’t mean you need to be completely humble about your accomplishments either.

    Keep a record of your positive impact within the organization and let others both within your company and your field know that you’re enthusiastic about your role and work.

    17. Don’t Just Build Your Network… Cultivate It

    It’s way too easy to add new people to your LinkedIn network and then forget about them for all eternity. Rather than just collecting business cards or social media contacts, you should be cultivating relationships with the ones you already have.

    Follow up with people that you haven’t spoken to in a while, offer to connect them with somebody you know in their field, or ask about a new job title they may have taken on. Doing so could be the spark that leads to a potential job referral.

    18. Join a Professional Organization

    The National Association of (insert your industry here) and other professional organizations can still offer a great wealth of advantages from networking to industry insights, and skill development.

    Even outside of professional organizations dedicated to particular job fields, civic organizations can also be fantastic for making new contacts. After all, so much about career advancement is who you know, and you never know who you’ll meet who knows somebody else who is looking for someone with your skills and experience.

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