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Exploring Risk Management and Emerging Trends in the Insurance Industry

By Younjoo Lee

November 16, 2023

Joan Schmit facilitates a risk discussion among some MBA and MSBA students on Nov 10, 2023.

What is risk?  Risk is defined as the measured variability in future outcomes. It should not be mistaken as “uncertainty” which is unmeasurable. Joan Schmit, a professor in the Risk and Insurance department at the Wisconsin School of Business, facilitated a conversation among MBA and Master of Science in Business Analytics (MSBA) students as they delve into the field of risk management, discussing topics such as sustainability, embedded insurance, and insurtech.

Younjoo Lee
Younjoo Lee

The goal in risk management is to manage the variability of future outcomes rather than eliminate it entirely. If risk is eliminated entirely, there will be no profit for a business. Individuals in an organization can fall within the spectrum of being risk averse or being a risk taker. There is often a balance between this spectrum that aligns with organizational objectives.

The job opportunities within the field of risk management span from more technical to strategic roles. Many of the MSBA students were interested in technical roles. Positions such as a risk analyst involve using data to predict the likelihood of events—for example, predicting flash fires or monitoring opioid use. There has also been an emergence of opportunities in the insurtech sector where technology is harnessed to enhance efficiency and effectiveness in the insurance industry. A prevalent problem that insurtech companies are tackling is leveraging technology to reduce administrative costs, ultimately making insurance more affordable for everyone. In terms of strategic roles, many of the MBA students were interested in becoming a broker or risk manager. A key distinguishing feature between a broker and a risk manager is that brokers build relationships with various companies, acting as intermediaries, while risk managers operate within a single organization, guiding employees on permissible opportunities and risks.

Embedded insurance is insurance sold at the point of sale and serves to mitigate inherent risks in products or services. Examples range from renters’ insurance offered at the lease signing or Zillow offering home insurance, to Tesla offering insurance when purchasing one of their cars. Embedded insurance can be advantageous to companies like Tesla because Tesla collects data on driver behavior and can therefore create better predictions and estimates for car insurance. Issues can arise from companies offering embedded insurance, including data privacy and guarding proprietary data.

It is important to note that advancements in insurtech and improved prediction capabilities pose a critical risk or challenge: the potential to exclude or discriminate against high-risk individuals. Often, high-risk individuals fall within lower socioeconomic standings and the cost of their insurance is prohibitive. This raises ethical questions about the responsibility for ensuring coverage for those in lower socioeconomic or disadvantaged circumstances: Is it up to the government to address these disparities and liabilities? Should there be government subsidiaries for high-risk individuals?

This exploration into risk management, embedded insurance, and the evolving landscape of insurtech highlights the complexities and ethical considerations in the industry. As future leaders and employees, we are prompted to engage in thoughtful discussions around profitability, accessibility, fairness, and societal implications.