Risk Janampatri – A new beginning to identify most appropriate risk mitigation solutions
Living in an Age of Constant Uncertainty
‘The uncertainty is constant’ is a fact. Due to our lifestyle, all of us are prone to risks that were not even assumed to exist in older days. The introduction of newer technological changes such as wireless networks, 5G, etc., has increased the risks of uncertainty given our limited knowledge of new technologies and their impact on the health of humans and ecosystems. In addition, the natural calamities such as forest fires, floods and earthquakes have added new dimensions in these uncertain times. The impact of Covid-19 on the economy is extremely fearful and difficult to comprehend. A few research reports have indicated that the treatment of a few diseases, such as tuberculosis, may get further complicated, and the period of recovery for patients may get extended in the post-Covid era.
Why Is Financial Risk Increasing Rapidly?
Furthermore, I believe while the risk of uncertainty is always there, it’s increasing at a rapid rate. While many risks are beyond our control, we can still mitigate the impact of financial risk to a large extent by taking timely actions. By taking care of our physical and mental health, we can significantly reduce the risk of health problems. Similarly, individuals can timely transfer the risk to an established institution; they can mitigate the financial impact of the risks due to any hazards to a large extent. For example, by purchasing home insurance, an owner transfers various risks due to fire, earthquake, floods, etc. to an insurance company for a small sum of money. Hence, any subsequent losses to the owner due to these hazards will be borne by the insurance company, and this smart customer does not suffer any material financial loss, as he had transferred the risk.
Hence, this mounting risk of financial uncertainties makes it essential for individual customers to have an effective risk mitigation mechanism. Insurance is the most popular financial instrument to cover these risks.
However, no insurance is worth it if it’s not optimal. In other words, it is important to be optimally insured. The optimal level of insurance is based on the risk profile of an individual customer; however, this risk assessment is generally not considered while selling the insurance products. In the absence of risk profiling, normally the same products are sold to customers with different risk appetites.
Understanding Risk Mitigation Through Insurance
Let’s illustrate this with a simple example: A person with low risk appetite (with limited ability to absorb losses) should ideally buy motor insurance with higher Insured Declared Value (IDV) and with add-ons such as zero depreciation, etc. This will ensure he does not pay any material charges to the car garage in case of any accidental claim subsequently. Similarly, a person with a higher risk appetite can save money on insurance premiums with lower IDV and nil or minimal add-on options. However, as these risk assessments do not happen while purchasing insurance products, it results in customers buying products not in accordance with their risk appetite. Hence, a person with a higher risk threshold will complain that he was sold an expensive product without any utility. Similarly, a low-risk-appetite individual will feel upset to pay a huge amount to the garage at the time of any claim in the absence of add-on options such as zero depreciation.
Currently there is another challenge. There is no tool to calculate the risk appetite of the individual customers, and most of them do not fully understand the risk terminology and their risk appetite.
In order to overcome this challenge, SafeTree has developed Risk Janampatri, a tool that immediately calculates the risk profile of the customers. Customers choose their options for various life situations, and the tool automatically calculates the risk profile of the customer. Finally
The customers can select insurance products based on their risk profile. This results in a happy and satisfied customer.
This is a new beginning in selling insurance products as per the profile of the customer.
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