Author Archives: Jared Wade

About Jared Wade

Jared Wade is a freelance writer and former editor of the Risk Management Monitor and senior editor of Risk Management magazine. You can find more of his writing at JaredWade.com.
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Warren Buffett Urges More Insurance Underwriting Discipline, Fewer “Testosterone-Driven” Decisions

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When it comes to making good financial decisions, few people are more respected than Warren Buffett. So when the chairman of Berkshire Hathaway, a holding company that counts GEICO, General Re and BH Reinsurance among its revenue generators, gives the insurance industry some advice, many will take note.

Buffett made the following pointed statements in a shareholder letter, warning the industry against “testosterone-driven CEO[s]” that chase policy volume even if it means writing business at  “inadequate prices.”

“At bottom, a sound insurance operation requires four disciplines: (1) An understanding of all exposures that might cause a policy to incur losses; (2) A conservative evaluation of the likelihood of any exposure actually causing a loss and the probable cost if it does; (3) The setting of a premium that will deliver a profit, on average, after both prospective loss costs and operating expenses are covered; and (4) The willingness to walk away if the appropriate premium can’t be obtained,” the letter states.  “Many insurers pass the first three tests and flunk the fourth. The urgings of Wall Street, pressures from the agency force and brokers, or simply a refusal by a testosterone-driven CEO to accept shrinking volumes has led too many insurers to write business at inadequate prices. ‘The other guy is doing it so we must as well’ spells trouble in any business, but none more so than insurance.”

Such comments are not surprising from someone with a conservative risk appetite like the one that has famously made billions of dollars for the Omaha Oracle. The only question, then, is whether the industry will follow his advice and re-prioritize underwriting discipline.

The history of the insurance market cycle tells us that this will occur.

We just don’t know when.

New Zealand Hit By Another Devastating Earthquake

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For the second time in the past six month, Christchurch, New Zealand’s second largest city, has been stuck by a catastrophic earthquake. The first was powerful enough to bend train tracks and, according to CNN, at least 65 people have been reported dead following this most recent magnitude 6.3 quake. (Photo above on a fallen Catholic church via The Atlantic)

“This is just heartbreaking,” New Zealand Prime Minister John Key said during a trip to survey the damage. “This may be New Zealand’s darkest day.”

The 6.3-magnitude quake struck Christchurch during the lunchtime rush. Frantic rescuers scrambled to reach those trapped beneath the rubble hours after the earthquake hit. Dazed, bleeding residents wandered through streets strewn with debris and piles of concrete.

The human toll will likely continue to mount as rescuers attempt to minimize casualties and overburdened hospitals triage the wounded.

In terms of economic loss, it’s obviously way too early to know anything for sure, but catastrophe modeling firm Eqecat expects the damage to be in the billions.

Estimating damages from this event is very challenging. The most fragile buildings were already damaged in September. Extensive damage from the September event is only partially repaired, and the state of repairs may have left many buildings in a more vulnerable position awaiting repair completion. EQECAT is researching this area more extensively to develop a method to separate the new damage estimate, but current indicators are that damage from this new event will exceed $1 Billion (USD).

Here is video of the disaster.

via CNN

10 Enterprise Risk Management Criteria

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Mash Risk Television has put together a new video documenting what it considers to be “The 10 Key Enterprise Risk Management Criteria.” I’m not going to pretend that this as engaging as an episode of Mad Men or anything, but Sim Segal, the guy doing the talking, does use some examples from the Titanic, AIG and others to drive home some insightful points about ERM.

Here are the 10 critieria:

  1. Enterprise-wide
  2. Includes all risks
  3. Focuses on key risks
  4. Integrates across risk types
  5. Aggregates metrics
  6. Includes decision making
  7. Balances risk and return management
  8. Makes appropriate risk disclosures
  9. Measures value impacts
  10. Focuses on primary stakeholders

Enjoy the show.

The 500 Worst Passwords

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For all the talk about high-tech advancements that organizations can make to improve cybersecurity, the best solution is often the simplest of all. Even in 2011, most people use shockingly weak passwords to protect their accounts. I get that it can be difficult to remember all the different passwords for all your different accounts and that this makes using “Red Sox” or “password” much easier than “yzxtwq8492$$**” but it also leaves you a lot more vulnerable.

To illustrate the weakness of most passwords, one designer has made a poster of the 500 worst, according to Mark Burnett’s book Perfect Password: Selection, Protection, Authentication. (via Craziest Gadgets)

Since this is a family site, the naughty passwords have been blacked out. You can click through to the original to see the NSFW version.