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A risk management view of the elections

By Michael F. Rellosa

THE forthcoming national elections in 2022 promise to be the most important one in a generation and will dictate the future of this country. As a risk manager and insurance practitioner, I cannot help but apply the risk management process and relate key principles of insurance to the elections and draw out pertinent lessons that I would want to share with you.

The risk management process (RMP), as taught to insurance newbies, is a simplified one but encapsulates its most important aspects. Allow me to dive right in and illustrate the benefits of utilizing the process to manage the myriad risks that these elections present to us both in the electoral process itself but more importantly, in the results of such elections.

Faced with the pervasiveness of risk, we must produce a well-thought-out plan to manage such risks. And in the insurance world, this includes four simple steps that if used singly or together are supposed to manage and control such risks, rendering it acceptable as compared to the outcome if not managed. The four risk handling methods are risk avoidance; loss prevention or reduction; risk retention; and finally, risk transfer. However, before using these methods, we must first apply the three steps of risk management, which are: risk identification; evaluation and the measurement of the risk; and finally, the selection of the risk handling method (RHM) itself.

We must be able to identify this risk, risk being the possibility of something going wrong. Is it a moral risk, is it a physical risk, is it a liability risk? Knowing what the risk is will dictate what risk handling method or combination of RHMs are best to use. Having identified the risk, we then would have to assess the chances of such a risk occurring as well as the extent of damage or loss should this risk occur. Finally, knowing what the risk is, the chances of it occurring and how big and how far the negative results can go, we can then make an informed decision on what risk handling method or combination of such methods to use.

Let us take on the task of choosing the best candidates. Following the procedure laid above for each of the elected positions at stake, we first identify the risks and the extent of the damage that each candidate can cause if elected (risk identification). Then we measure the chances of these risks occurring if that candidate is chosen as well as the chances of that candidate winning (risk measurement and evaluation). Given the answers, we can then choose what the most appropriate risk handling method or combination of methods to use.

We can avoid the risk, that is, we do not vote for the candidate we deem to be the riskiest in terms of foreign relations, rule of law, experience, education, track record and history, even religious beliefs, or whatever criteria one chooses to utilize.

We can try to prevent or reduce the risks from playing out. This may be difficult on an individual basis, but you can always join like-minded groups with similar advocacies and actively participate in their activities.

We can choose to retain the risk if the risky attributes are small and are of no consequence in the bigger picture.

Or we can choose to transfer the risk to another party (that is, through insurance). This is where it becomes tricky and self-limiting as not all political risks are readily transferable or insurable. When it comes to political risks, only certain acts of government or leaders of government can be insured against, or more precisely, the effects of their acts can be insured against. Examples include expropriation, force majeure, regulatory changes, legal risks, etc. The insurance policies designed to address these include, but are not limited to, industrial all risks coverages, expropriation covers, political violence covers, arbitral awards covers, denial of justice covers, among others. These are highly specialized covers and need careful assessment and negotiations with the insurer. In other words, one cannot rely on insurance to cover these risks unless one is a conglomerate, filthy rich and able to afford such a product.

This practically leaves us with only three risk handling methods to use when using the RMP in choosing a candidate. We avoid the rotten ones, we try to reduce the negative effects by putting safeguards in everything — from poll watchers to cyber experts — to guard against cyber manipulation or have an army of truth warriors to counter misinformation and fake news, among others. Finally, we retain the good candidates based on our assessment and campaign for and vote for whom we may ascertain to be the best!


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