Insurance

December 19, 2023 Published by British Columbia Chapter - By Leah Wood

Reshaping The Conversation About Risk

From CCI BC Strata Connection Magazine, Volume 01, Fall 2023

In a world filled with uncertainties, understanding, and effectively managing risk is paramount. As insurance brokers our goal is to reshape the conversation surrounding risk, enabling our clients to gain a deep understanding of the climate and behavioral threats they face. Our mission extends beyond providing coverage; we aim to empower our clients with the knowledge and tools needed to navigate the complex landscape of risk.

In this comprehensive guide, we'll delve into the intricacies of risk management, shedding light on key principles and strategies that can help individuals and businesses alike build resilience against potential threats.

There is a great book called "The Ostrich Paradox: Why We Underprepared for Disasters," that stresses the importance of a systematic approach to overcoming cognitive biases. By initiating discussions about risk, we aim to tackle these behavioural hurdles delaying the shift towards preparedness and prevention. 

Councils should be aware of the complexities of risk, emphasizing the importance of addressing cognitive biases, encouraging education, and promoting strategic planning to safeguard what matters most. The amnesia bias, as discussed in "The Ostrich Paradox," refers to our tendency to forget the lessons learned from past experiences, especially during times of crisis. An example of overcoming this bias could be implementing a structured debriefing process after a project or crisis. By systematically reviewing what worked well and what didn't, documenting lessons learned, and establishing protocols for future reference, individuals and organizations can mitigate the impact of amnesia bias and improve their decisionmaking over time.

Understanding Cognitive Biases

One of the critical hurdles in effective risk management lies in the realm of cognitive biases. These mental shortcuts can lead us to make decisions based on flawed reasoning. Recognizing and addressing these biases is the first step toward informed risk assessment. By acknowledging our predispositions, we can adopt a more objective approach to evaluating potential threats.

The myopic bias, outlined in "The Ostrich Paradox," involves a short-sighted focus on immediate consequences while neglecting long-term impacts. In the context of myopic bias and water leak sensors, consider a strata council facing the decision of whether to invest in installing water leak sensors on their property. The myopic bias might lead them to focus solely on the upfront cost of purchasing and installing the sensors, potentially causing hesitation or avoidance of the investment. To overcome myopic bias in this scenario, the ownership group should broaden their perspective. Instead of just considering the immediate expenses, they should weigh the potential longterm benefits. Water leak sensors can prevent costly water damage by detecting leaks early, potentially saving on expensive repairs and insurance claims. By taking a more comprehensive view, they can overcome the myopic bias and make a decision that aligns with their long-term interests.

Education as the Cornerstone of Risk Awareness

Education forms the bedrock of risk awareness. It has become evident that the majority of apartment and strata claims are linked to human behaviour. While accidents happen, 90% of all outcomes that are predictable, are preventable. It is predictable that a 20-year-old hot water tank will leak and cause damage, therefore it is preventable. It is predictable that flushing kitty litter down the toilet will cause a backup, therefore it is preventable. It is predictable that leaving a vacant unit unheated during the cold season could allow for a freezing water pipe, therefore it is preventable. We believe that informed clients are better equipped to make sound decisions about their risk exposure. This education extends beyond the technicalities of insurance, encompassing a deep dive into the climate and behavioural factors that contribute to potential losses. By fostering a culture of continuous learning, councils become proactive in identifying risks that can be mitigated.

Strategic Planning for Resilience

Strategic planning is the linchpin of effective risk management. It involves a methodical approach to evaluating potential risks, weighing them against potential benefits, and implementing targeted measures to enhance resilience. Best practices include risk assessments, costbenefit analyses, and phased implementation of strategies. This meticulous planning not only reduces the likelihood of losses but also minimizes their severity, should they occur. 

When disaster strikes, the time to prepare has passed. Risk management is not just about loss frequency reduction; it is also about loss severity reduction. You cannot stop every loss from occurring but in many cases, you can reduce the severity before or after it happens by strategic planning.

Fire extinguishers in every unit will not stop a fire from happening but it may reduce the severity of damage if it can be extinguished before the sprinklers activate. Water leak detectors will not stop a loss from occurring, but it will alert an occupant of an issue and reduce the length the water runs free. Tree and bush clearing are an important way to create defensible space between a wildfire and your property; although not preventing the wildfire, it can reduce the severity of damage to your property. Because you had a plan, you were able to reduce the severity of the risk. 

We believe that informed clients are better equipped to make sound decisions about their risk exposure. This education extends beyond the technicalities of insurance, encompassing a deep dive into the climate and behavioural factors that contribute to potential losses. By fostering a culture of continuous learning, councils become proactive in identifying risks that can be mitigated.

The Power of Awareness Campaigns

Over the years, several highly successful awareness campaigns have demonstrated their effectiveness in significantly reducing risk. Notable examples include Mothers Against Drunk Driving (MADD), which, through their marketing efforts, managed to reduce alcohol-related accidents by 50%, as reported by the National Highway Safety Administration. Another lasting campaign is Smokey the Bear, an iconic character whose message from 1944 is just as relevant today as it was then. What these campaigns have done so effectively is emotionally and intellectually connect people to negative outcomes, making them more open to embracing change when faced with adversity. 

When something negative has happened, it is then that people are more willing to participate in change. The hard market, at least in the strata side was heavily publicized and was very common knowledge; buildings were left partially or totally uninsured, people were losing their homes, and deductible limits became unmanageable. It received much negative attention, but it garnered the industry’s attention nonetheless. And that is when owners are often most receptive to the power or awareness messaging and education.

Normalizing Risk Management

It's a common misconception that expertise in engineering or finance is a prerequisite for effective risk management. We believe that risk management is a discipline that can be understood by all. The role of your broker team is not to be technical experts, but to facilitate the acquisition of knowledge and tools necessary for informed decision-making. Through self-education, careful planning, and steadfast diligence, councils can take charge of their risk landscape.

Proactive risk management is not a passive endeavor —it's a proactive, continuous effort. By addressing cognitive biases, promoting awareness, and advocating for preparedness, we can collectively create a safer and more secure future for all.

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Leah Wood
Claims and Loss Control Specialist, Real Estate, Acera

As a dedicated risk manager and loss prevention consultant at Acera Insurance, I bring a wealth of expertise to the table, ensuring that our clients receive top-notch guidance in safeguarding their assets and mitigating potential risks. Committed to proactive strategies, I co laborate closely with clients, aligning seamlessly with Acera Insurance’s pursuit of exce lence. Beyond risk assessment, I prioritize lasting client relationships and contribute to Acera Insurance’s reputation for innovation. Proudly part of a team that sets industry standards, I navigate complexities with precision to ensure clients receive superior protection and service.