Finance and Insurance: Powerful Economic Forces Pt 4

One thing we have to understand in understanding the progress of financial technology is its fundamental relation to information technology. Computers, the Internet and communication devices are fundamental to financial progress and they make things possible that wouldn’t have been possible before. Oftentimes, inventions that seem in the abstract to be good ideas impossible because something that you have to do to make it actually come into practice is too expensive and so it’s not economic to produce the invention.

But then, developments in other fields can change the relative prices and suddenly make an idea that had been hypothetical and unapplied suddenly work well. So, financial inventions also involve experimentation. Like in any other invention, nobody knows what will work and abstract theory doesn’t guide you completely. Once an invention is seen to work, it is rapidly copied around the world.

 

We can see various breaks in financial history when some new idea was suddenly proven workable. Traditionally, financial inventions were not granted patent rights, but now in the United States and in a number of other countries it has become possible to patent financial inventions. I know I’ve done that in my life and so I think it gives a different perspective on finance.

 

Then, I want to talk about insurance. The institution of insurance is something that really came in. It’s one of the earliest – I consider it a division of finance – really came in the 1600s when probability theory was invented. The mathematical theory of probability was unknown until that time and you can see that insurance suddenly made an appearance at that time. This will be a historical as well as a theoretical discussion of insurance.

 

Then, I will move to portfolio diversification and supporting financial institutions. This is again, a more theoretical lecture. It will be about the capital asset pricing model. It will be about the securities market line, about the data, about the mutual fund theorem and it will also be about institutions that we have, about investment companies and their management. So, it’s really parallel to an insurance discussion. Insurance pools risks like life risks or fire risks by writing policies to individual policyholders. Portfolio management pools risks in a different way by assembling a diversified portfolio or a portfolio that’s negatively correlated with a risk that someone has.

 

Then, I want to go to the efficient markets theory. Efficient Markets is a theory about, well, it came in about three decades ago, maybe it’s closer to four decades ago, it’s a theory that financial markets work very well and incorporate information very well. The efficient markets hypothesis was encouraged. Actually, the idea goes back over 100 years. It’s encouraged by the observation that financial markets seem to respond with great speed to new information and, when new information appears, prices will suddenly adjust in the financial markets.

Finance and Insurance: Powerful Economic Forces Pt 4

Finance and Insurance: Powerful Economic Forces Pt 3

I think in the remaining time, I will just go through an outline of the course and that means go through the topics of the various lectures and then I’ll let you go for today.

 

So, the way this course is divided up is different than the Financial Theory course. If you look at John Geanakoplos’s course on Financial Theory, his mathematical concepts are central to his outline of the course, but this being a Financial Markets course, I’m dividing it up more in terms of markets and institutions. I still want to start with some theory and I thought that, well, I plan to start by talking about the most basic concepts of risk management, which underlie finance. That will be Wednesday’s lecture. I call it the universal principle of risk management pooling and the hedging of risk. I think it’s the most important theoretical concept that underlies finance and insurance, which we’ll also talk about a little bit in this course. The idea is that if you spread risks, they don’t disappear, they’re still there, but they’re spread out over many people and the impact on any one person is reduced.

 

So, a basic principle of insurance is that if each person or each family suffers the risk, for example, that a parent, father or mother might die which is a terrible blow to the family, but it’s not a blow to society as a whole because people die and it has a certain statistical regularity. So, it makes sense that we pay families who have lost a father or a mother so that they can keep going. It benefits everyone to have a situation in place for that. I wanted to talk about that with a little bit of reference to probability theory and so that’s what I will be covering.

 

The next lecture will be among the more mathematical, although it’s very elementary. If you had a course in probability and statistics, then you’ll find it easy to follow, but it’s self-contained again. I feel like I have to introduce concepts like variance and co-variance and correlation in order to talk about finance. So, that’s what we’ll do in Lecture Two.

 

The following lecture – I want to come back to some basic themes that – the third lecture about technology and it relates to another book that I wrote. I’m not assigning it, but I wrote a book called New Financial Order in 2003 about technology and finance. A theme of that book was that – I’ve already said this to you, but it’s very important point that financial technology is evolving and improving just the way engineering technology or biochemical technology is improving. It’s getting better year by year and the course of finance over your lifetime will be dramatic. So, the financial institutions that we have ten years from now will look very different from the ones we have now.

Finance and Insurance: Powerful Economic Forces Pt 3

Becoming An Insurance Expert Witness

post by Sam C.

There are so many things that could go wrong in life. Whether you are going on holiday, driving a car or even just purchasing items to keep at home, there is always a risk that some unforeseen event will occur that will result in you losing out. We need protection against such events, and it is because of this that we insure most of the things that we do or purchase. This gives us something of a buffer; we do not lose out as a result of the accident because the insurance company will pay out and cover the cost of the damage. This would make it seem as though the problem has been solved.

However, things are rarely that simple. There are many insurance companies that are very reluctant to pay out on accidents, pointing to obscure technicalities in the documents that you signed. They assume that the layman does not understand most of the legal jargon within the contract and therefore, whenever there is any ambiguity in the document, they will decide that your insurance does not cover the event that occurred.

We therefore need somebody who is skilled in dealing with such situations in order to ensure that we receive the money that we are entitled to. This is the time that we turn to an insurance expert witness. These are people who have dealt with cases involving contracts and understand all the technical language that seems to elude us. They are aware of precedents, (the ways in which the court has interpreted similar provisions in the past), and can therefore inform us as to whether we are entitled to any money. Indeed, they may even have worked within an insurance company, so know how others in the field have interpreted the same terms. This is vitally important if you are looking to launch a claim against the insurance company who refuses to pay out, as it will reassure you that you are entitled to the money that is being withheld.

Remember that insurance is big business, and businesses become wealthy by retaining as much money as they can. They rely on people simply accepting their word at face value and not pursuing it further. If you want to make sure that you are receiving the protection that you believed you were signing up to, make sure you consult an insurance expert witness whenever anything untoward happens; you don’t want to miss out on a claim that you are entitled to make.

Becoming An Insurance Expert Witness