The discussion about the current Swine Flu pandemic brought up the term relative risk, which is the ratio of the proportion of those exposed to the non-exposed. The raging health care debate brought up the term risk continuum, which is often a graphical depiction of risk compared to other risks. Our recent townhouse purchase on the water brought up the insurance terminology of flood risk, hurricane risk, and other risks described in the policies. The news media covers the risk of a lengthening recession and other possibilities that can be statistically studied. The definition of risk is: the possibility of suffering harm or loss; danger. This blog is focused on how we view those possibilities, and the opportunities presented by those views. 100% of people die but "life" insurance companies still make billions of dollars.While my memory of statistics class is a little fuzzy, the conclusion is that the application of a formula to a set of data results in a probability. Probabilities are the conditions or quality of the likelihood that the possibility is true. There is even a branch of mathematics dealing with the statistical evaluation of the probability of random occurrences called probability theory. With all this capability to assess the risk of any particular subject, one would think that there would be very few unknowns in life. Alas, the opposite seems to be true. Even advisors we hire to tell us the direction of the stock market average 50% at best. Predictions of the future rarely seem to come true. The media loves to report on the unknowns. The resulting vacuum of expanded unknown can often be offset with insurance, available for a fee. Acceptance of the unknown is easier if the statistical probability is known. Failure of one can be balanced with success of others, making a "pool" of risks.
Insurance operates by spreading the individual risks into large risk pools, lowering the probability while allowing them to charge at a higher probability. Individually we might accept a higher risk on the continuum, which is why the lender required the flood, hurricane, and homeowners insurance on the waterfront townhouse. The lender forced me to a lower risk to protect their investment. The willingness to accept risk is called our risk tolerance. This risk tolerance varies from person to person but over the past few decades has seemingly dropped for the majority in our society. An old saying; no risk, no reward was based on the recognition that accepting risk would result in higher income (or losses) than not doing so. The lender didn't care what my risk tolerance was, they had their own and the forced insurance premium payments would come from me, not them.
The wisdom of accurate risk assessment, along with an applicable risk tolerance, results in more profitable decisions. The life insurance companies essentially make their money betting people will live longer than the term of the policy, or that they will pay in more than the inflation adjusted pay outs. By averaging the lifestyles and medical history of all people they set their premiums at a rate that will make a profit, then turn down those that are unlikely to live that long. However, since I can control my lifestyle and don't have a lender involved I am able to "self insure" by not paying for their product. Acceptance of future risks with a higher risk tolerance can also save me money. High deductible, catastrophic policies are far cheaper. The message here is not anti-insurance, the point is just easier to make with insurance examples. The message is pro-responsibility for each of us to accurately assess risks. This thought process goes far beyond insurance to all life decisions.
Eternal risk assessment is even more important than the temporal subjects mentioned so far. Consider the possibilities that exist beyond death. Hebrews 9:27 says it is appointed for men to die once and then the judgement. Revelations 20 describes the judgement and concludes with verse 15 that says "and if anyone's name was not found written in the book of life, he was thrown into the lake of fire". This book of life is as close to the eternal insurance policy as an analogy can describe, but it is not available for money or time. Jesus himself said in John 5:24 "Truly, truly, I say to you, he who hears my word, and believes Him who sent Me, has eternal life, and does not come into judgement, but has passed out of death into life". The faith needed comes the same way as Romans 10:17 says "So faith comes from hearing, and hearing by the word of Christ". Even with the Bible available at every bookstore, people more often buy "life" insurance policies.
Living life to it's fullest isn't just an eternal guarantee either, but it will affect your risk tolerance for your remaining days on earth. Hebrews 11:1 says "Now faith is the assurance of things hoped for, the conviction of things not seen". Relative risk is just a ratio when the God who created the universe is allowed to choose the outcome. The risk continuum is balanced by the directions given for life. 2nd Timothy 3:16 says "All Scripture is inspired by God and profitable for teaching, for reproof, for correction, for training in righteousness". Wisdom allows a divine view of your life and challenges, so that the funds you are assigned stewardship over are not wasted on the perceived risk reduction provided by insurance, but more wisely used on the purposes of the almighty God. Truly assessing risks comes not from the statistical analysis, but from knowing the one who controls the future and spending time listening to Him.
