Risk Management and Transfer

Video Transcript

Larry Harb:

So, let’s talk about risk management. So, I’m gonna give you a basic risk management model, and here it is. It’s very simple and easy. And, I’m gonna put this in terms that anybody would understand it. So, let’s talk about your 16 year old son who just turned—15 who’s just turned 16 and announces, dad—since we’re all male in here, I’ll say dad—dad, I wanna drive. And now you’ve gotta  decision to make, dad. Are you gonna let your son drive? Well, my dad was of the mindset that said, no. So, my dad said, son, you don’t need to get a driver’s license at age 16, you’re not gonna drive. What did he do? He avoided the issue. We’re getting a driver’s license. You don’t have a driver’s license, you’re not gonna drive, right? That was the logic. So, his way of dealing with my driving was avoidance. If you don’t have a license you’re not gonna drive—we don’t have to worry about it.

My buddy, his dad said, no, Billy, you can drive, but we’re gonna put some restrictions out there. You can only drive during daylight hours. You can only drive the pickup truck, which was a regular pickup truck, which then, maximum people in the seat were three. And that was squeezing one in the middle. So, maximum you could have in there, was one other person, he said. So, you can have one friend in the car with you. So, he put restrictions on him. Third thing was, okay, you can drive, you can get your license, but what happens if you have an accident? You’re gonna have to pay for that accident. And then, of course, the question becomes, okay, but how do I pay for the accident and it’s, oh, maybe we can transfer that risk using insurance.

And that’s all insurance is at the end of the day, isn’t it? Insurance is nothing more than a risk transfer vehicle. Don’t mean risk and exposures go away, it just becomes who pays for it at the end of the day and that’s all we’re really looking for.