Chapter 1 Understanding Risk
The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk: the notion that the future is more than a whim of the gods and that men and women are not passive before nature.
The idea that risk can be managed is one of the defining characteristics of modern life. Today, the notion of risk and the possibility of its mitigation are thoroughly embedded into our everyday lives. Whether we are aware of the risks around us or not, we are all beneficiaries of robust risk management. The field of risk management is quite broad. In this text, however, we focus primarily on insurance and the financial tools and techniques used by individuals and organizations to manage risk. Thus the terminology utilized throughout this text is that of insurance and financial risk management. In this chapter we introduce this vocabulary, beginning with the concept of “risk,” its meaning, and our attitudes toward it. We go on to explore the different ways risk may be categorized and the terms used to distinguish between various risk components.
Today we inhabit a rapidly changing risk landscape, driven by social and technological innovations. Yet we are just beginning to identify the risks emerging from such advances. Social media, the sharing economy, “the internet of things,” artificial intelligence, big data, and myriad other new technologies all carry potential for risk. In this chapter and throughout this book we show how the risk management concepts presented here are not just applicable to the familiar risks to life, health, property, and liability, but also to new and emerging risks.
This chapter contains the following sections:
Links: Introducing the Holistic Risk Puzzle
Defining Risk
Attitudes toward Risks
Types of Risk Exposures
Perils and Hazards