The world of insurance is built upon the concept of risk transfer: instead of taking on the full cost of risk, we buy insurance. For a fraction of the cost of what we might lose, we pay premiums to transfer the (relatively) remote risk to someone else.
But what if the activity involves enormous risk? And what if the people seeking insurance are by definition thrill seekers and lovers of danger? How would you underwrite them?
In an article in the Los Angeles Times (registration required), Charles Duhigg describes the world of Ken Schulteis, President of Global Underwriters, which writes more than 10,000 insurance policies a year for people climbing mountains, racing cars and stepping out of their predictable routines. (They also cover diplomats on assignment and oversees defense contractors — in today’s world, activities at least as dangerous as mountain climbing.)
Global offers rescue insurance to mountain climbers. (And you think you have problems!) This type of insurance raises the classic insurance question: would you want to sell insurance to anyone who thinks they need it? The article quotes Schulteis as saying “The more I learn about people, the more I worry about selling insurance. I always ask myself: Will selling a sane person insurance make them take insane risks?”
Once adventure-seeking climbers have rescue insurance, will they become more reckless, simply because they feel safe? “People start taking small risks,” says Schulteis, “figuring rescue is nearby. But gradually those risks become deadly.”
To frame the article, Duhigg tells the story of a well-planned climb gone bad, with one climber nearly paralyzed after being hit by a falling rock and the other without a cell phone to call for help. They are eventually rescued — and Global picks up the tab.
Some people feel more alive when they are at risk. That’s why they climb the mountain in the first place. The riskier the climb, the greater the challenge. But how does an underwriter sort out the reasonable risk (the prudent risk-taker) from the reckless? It appears that Global is a profitable company, so they must be making good decisions. In the meantime, as we approach each day with our own little risk assessments that range which shoes to put on in the morning to when to cross the street, it’s comforting to know that some people are making risk assessments that dwarf anything that we have to deal with. Better them than us.