Warning of a hazard is great, but eliminating it is far better. A well-known mutual insurer, priding itself on its ability to manage customers' risks, runs a television advertisement that demonstrates how tricky this can be. I thought about their ad while preparing a class entitled, “The Ethics of Risk” for Emory University this spring. How do we ethically deal with risks of loss, hazards, and perils? In the television ad, we are shown a banana peel on the sidewalk — a definite hazard. Then along comes the risk manager, who places an orange cone in front of it. He has warned of the hazard, certainly a good risk practice, but in this case, the wrong practice. What if a blind person tripped over the orange cone? A good risk manager would have eliminated the hazard by simply picking up the banana peel and throwing it away.
There are many ways of dealing with risks. Most of us think in terms of taking action — do something, NOW! But that may not always be the best risk plan. A comedian many years ago (I've forgotten his name, but perhaps some reader may recall it and let us know. I don't want to be accused of plagiarism!) did a routine called, “It's in the Book,” a spoof on illogical nursery rhymes. One went something like this:
Little Bo Peep has lost her sheep… Now, that's a shame, because those sheep are valuable, for their wool and mutton … and she doesn't know where to find them.
Well for gosh sakes, if she knew where, they wouldn't be lost! Leave them alone …LEAVE THEM ALONE? The sheep are lost, she doesn't know where, so what else can she do but leave them alone? It's in the book! And they'll come home…Ahh, yes, there will be a better day, they will come home, dragging their tails behind them. BEHIND THEM! Did we think they'd drag them in front of them? It's in the book!
Risk management deals with loss, like Bo Peep and her sheep. Things get lost or stolen, broken or injured, and most often we charge ahead, doing something about it. But occasionally, risk management calls for the Bo Peep Factor: Leave them alone! Many times, a potential loss will remedy itself if we do nothing. Tails may drag a little, but in the long run, doing nothing and leaving the thing alone may prove to be the best action.
But not always. The Bo Peep Factor also can create an even greater loss. Take Hurricane Katrina, for example. Doing nothing, or at least very little, has resulted in a bigger mess than might otherwise have been the case. But I also can recall cases where we consciously avoided pursuing a claimant or insured over some minor factor, fearing that further contact might only stir up a claim where none existed. Once the person had been contacted, the next step was up to him. For example, while it is required ethical — and often legal — behavior to warn an unrepresented claimant of an approaching statute of limitations, that rule is usually applied only when there is specific knowledge that the individual actually does have a pending claim. If there is an initial “I wasn't hurt,” or “I don't think there was much damage” statement, then apply Bo Peep Factor.
Learning the Hard Way
In the year 2000, everybody was hollering about the new economy and suggesting that anyone with a penny to spare should get into e-commerce and buy high-tech stocks. Afraid I was missing the boat, I bit! But the new economy, including the so-called high fliers, bit back and my portfolio suffered as a result. Two years later, I decided I'd had enough lost sheep and switched back to the old economy funds. Both moves were bad. Timing is crucial when we're waiting for sheep to come home.
Had I practiced the Bo Peep Factor, I'd be dollars ahead today. Urgency in taking action is sometimes the wrong action. Whether one is dealing with speculative risks or banana peels, taking no action other than an obvious one may ultimately be better than a dumb move.
Ken Brownlee, CPCU, is a former adjuster and risk manager, based in Atlanta. He now authors and edits claim-adjusting textbooks.
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