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There are always uninsurable events and for large enough companies/risks there are also liquidity limits to the size of coverage you can get from the market eve

There are always uninsurable events and for large enough companies/risks there are also liquidity limits to the size of coverage you can get from the market even for insurable events. As such, it makes sense to make the level of risk you plan to accept (by not being insured against it and not mitigating) a conscious economic decision rather than pretending you've covered everything.

jacquesm 6y ago
As long as you have outside shareholders you can decide that. If you do you'd be surprised about how they will respond to an attitude like that. After all: you can decide the levels of risk that you personally are comfortable with leading to extinguishing of the business, but a typical shareholder is looking at you to protect their investment and not insuring against a known risk which at some point in time materializes is an excellent way to find yourself in the crosshairs of a minority shareholder lawsuit against a (former) company executive.
- tomatocracy 6y ago
  In my work life I am a professional investor, so I've been through the debate on insure/prepare or not many times. It's always an economic debate when you get into "very expensive" territory (cheap and easy is different obviously). The big example of this which springs to mind is business interruption cover - it's ruinously expensive so it's extremely unusual to have the max cover the market might be prepared to offer. It's a pure economic decision.
  - jacquesm 6y ago
    Yes, but it is an informed decision and typically taken at the board level, very few CEO's that are not 100% owners would be comfortable with the decision to leave an existential risk uncovered without full approval of all those involved, which is kind of logical. Usually you'd have to show your homework (offers from insurance companies proving that it really is unaffordable). I totally get the trade-off, and the fact that if the business could not exist if it was properly insured that plenty of companies will simply take their chances. We also both know that in case something like that does go wrong everybody will be looking for a scapegoat, so for the CEO's own protection it is quite important to play such things by the book, on the off chance the risk one day does materialize.
    - tomatocracy 6y ago
      Absolutely - but that's kind of my point. You should make the decision consciously. The corporate governance that goes around that is the company making that decision consciously.
      - jacquesm 6y ago
        And this is the heart of the problem: a lot of times these decisions are made by people who shouldn't be making them or they aren't made at all, they are just made by default without bring the fact that a decision is required to the level of scrutiny normally associated with such decisions. This has killed quite a few otherwise very viable companies, it is fine to take risks as long as you do so consciously and with full approval of all stakeholders (or at least: a majority of all stakeholders). Interesting effects can result: a smaller investor may demand indemnification, then one by one the others also want that indemnification and ultimately the decision is made that the risk is unacceptable anyway (I've seen this play out), other variations are that one shareholder ends up being bought out because they have a different risk appetite than the others.

jacquesm 6y ago

As long as you have outside shareholders you can decide that. If you do you'd be surprised about how they will respond to an attitude like that. After all: you can decide the levels of risk that you personally are comfortable with leading to extinguishing of the business, but a typical shareholder is looking at you to protect their investment and not insuring against a known risk which at some point in time materializes is an excellent way to find yourself in the crosshairs of a minority shareholder lawsuit against a (former) company executive.

tomatocracy 6y ago
In my work life I am a professional investor, so I've been through the debate on insure/prepare or not many times. It's always an economic debate when you get into "very expensive" territory (cheap and easy is different obviously). The big example of this which springs to mind is business interruption cover - it's ruinously expensive so it's extremely unusual to have the max cover the market might be prepared to offer. It's a pure economic decision.
- jacquesm 6y ago
  Yes, but it is an informed decision and typically taken at the board level, very few CEO's that are not 100% owners would be comfortable with the decision to leave an existential risk uncovered without full approval of all those involved, which is kind of logical. Usually you'd have to show your homework (offers from insurance companies proving that it really is unaffordable). I totally get the trade-off, and the fact that if the business could not exist if it was properly insured that plenty of companies will simply take their chances. We also both know that in case something like that does go wrong everybody will be looking for a scapegoat, so for the CEO's own protection it is quite important to play such things by the book, on the off chance the risk one day does materialize.
  - tomatocracy 6y ago
    Absolutely - but that's kind of my point. You should make the decision consciously. The corporate governance that goes around that is the company making that decision consciously.
    - jacquesm 6y ago
      And this is the heart of the problem: a lot of times these decisions are made by people who shouldn't be making them or they aren't made at all, they are just made by default without bring the fact that a decision is required to the level of scrutiny normally associated with such decisions. This has killed quite a few otherwise very viable companies, it is fine to take risks as long as you do so consciously and with full approval of all stakeholders (or at least: a majority of all stakeholders). Interesting effects can result: a smaller investor may demand indemnification, then one by one the others also want that indemnification and ultimately the decision is made that the risk is unacceptable anyway (I've seen this play out), other variations are that one shareholder ends up being bought out because they have a different risk appetite than the others.