A lot of people are familiar with the idea of the “Black Swan” event, quite simply an event that is near impossible to predict and has catastrophic results. Oftentimes, after a Black Swan event we mistakenly believe it was easier to predict than it actually was and over time dismiss its significance. After a Black Swan event, that we are either part of or witness, we tend to drift back to the way things were and fail to adequately protect ourselves from future Black Swan events.
So why am I talking about Black Swans and how does it relate to insurance? Insurance of course, is meant to protect your business from financial loss and a Black Swan event could certainly cause financial harm. The problem is that most businesses are not approaching their insurance with the mindset of eliminating the Black Swan event. Instead, the insurance program is typically put into place through the process of determining what is required contractually and statutorily, what are the tangible assets worth, and what your peers’ insurance program looks like. Instead, I would argue, the process should start not from trying to fit your risks into how you have typically purchased insurance but from the opposite end of the spectrum. Take a macro look at your risk, forget everything you know about insurance and ask yourself what keeps you up at night. What could really sink your company, and then ask the question, are you transferring that risk or retaining it?
Some of these concerns can be covered through traditional insurance policies but the policy needs to be structured in the correct fashion. For other risks, people often do not realize there are specialized insurance policies available that can insure these risks. The problem is that because these risks were not insured in the past it is assumed that they can’t be insured in future, all the while coverage is and was available if you knew were to look. Yes, these coverages are more complex and require a bit more work to put in place, but most likely this is where your Black Swan lies.
In Nassim Taleb’s book “Anti-Fragile,” which I view as his most important book, he talks about using the process of elimination to make yourself more robust or what he calls anti-fragile. Being robust or anti-fragile is the quality or ability to withstand and perhaps even prosper from a Black Swan event. Because we cannot predict a Black Swan event our best protection is eliminating it from happening where possible. Insurance can be the mechanism for eliminating or reducing the risk more often than you think. If, however, you and your broker are trying to jam all your risks into the traditional insurance bucket you are most likely leaving yourself exposed.
People often tell me, “we are good on the insurance” or “we are taken care of.” I would ask, how do you know? When was the last time your broker brought something to you that was innovative or outside the box, and by the way, cyber insurance is not outside of the box anymore.