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Our risk exposure changes over time as we go through different experiences, events and contexts. Acknowledging this fact can help us align our changing risk profile with the proper protection and coverage. This is why it’s essential to take a dynamic approach to risk management and insurance to make sure that your policies keep up with your rapidly changing circumstances and continue to protect you as you go about your daily activities.
Insurance exists to protect us from hazards and perils that we may encounter in our everyday personal or professional life. We all tend to buy a policy and then forget about it as we go about our everyday life thinking that the insurance we bought will get us covered for the risks that may threaten our financial well-being. However, we all know that our circumstances change – in this rapidly changing world, sometimes daily – yet insurance policies that are meant to cover us in the times of hardship stay the same.
This is why you should review your risk exposure and manage your insurance more frequently to make sure that your policies keep up with your changing circumstances and continue to protect you as you go about your daily activities. That’s where dynamic risk management steps in.
Risk profile refers to an overall assessment of risks you are exposed to given your specific individual characteristics such as lifestyle, behavior, life stage and other. This assessment is a crucial step in risk management as this is where you and your insurer decide how much insurance is appropriate for your individual case and how to structure the optimal coverage.
For example, auto insurance will depend on the factors that relate to the car, such as the age of the vehicle, its make and the safety features; but also factors that refer to the profile of the driver such as age, marital status, driving record and location of your home as well as the purpose of the car, or whether it’s used for personal or commercial purpose. All these features when taken together form a risk profile specific to each individual case. The thing is that these features may change over time.
As the circumstances of your life change so does your risk profile and risk exposure. But if your insurance policies stay the same, your coverage is not fluid which means that protection would not be synced with your current risk exposure. Dynamic risk management is here to change this.
Dynamic risk management is a process of observation and evaluation of risk exposure based on your behavior, lifestyle and context.
For example, your life insurance risk profile will depend on characteristics such as your overall health, your occupation, your lifestyle factors, your overall behavior. When you set out to get a life insurance coverage, these features will determine the type of coverage you need and the price (premium) you will be charged for it at the time of purchase. You will buy a policy appropriate at that time and probably won’t think about it until you need to make a claim, at which point you may find yourself under or over-insured as your coverage may not be aligned with your current risk profile. For example, if you bought a life insurance policy and then started practicing a high-risk activity such as skydiving or rock climbing your insurance coverage needs to reflect this.
In today’s world, your personal and professional lives are probably moving fast and are constantly accelerating. In a dynamic environment, risk management and insurance coverage need to be dynamic too. As you go through different contexts of your life, the insurer performs multiple risk assessments which then translate into relevant insurance products. This can go for every type of policy.
For example, as you get married, your circumstances change significantly, affecting your lifestyle, interests and financial goals. Your insurer can step in and take care of adjusting your protection to reflect these contextual changes as you make the transition to the new life stage.
Digital technology allows insurers to continuously track personal risk exposures adjusting individual coverages to reduce protection gaps that arise when customer’s circumstances change. Artificial Intelligence-based algorithms can dynamically optimize risk assessment based on information about your changing behavior, lifestyle, interests, or life stage. Data-driven dynamic risk management gives both you and your insurer the power to understand and assess risks more dynamically and accurately.
Abundant data enables the rise of insurance policies that can constantly and automatically adjust to decisions that you make. The next-generation data-driven insurance policies enable dynamic risk management products allowing different components of once undivided policy to be priced, bundled, or sold separately.
The end result of dynamic risk management is a customer-centric insurance product that better match your changing needs. At the same time, the relationship between you and your insurer is evolving from mere risk transfer to enhanced risk partnership.
This proactive risk management allows you to dynamically assess and manage your risk exposure leading to a more accurate and adaptable evaluation of the risk that you are exposed to.
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