Acts of God and Man: Ruminations on Risk and Insurance

Michael R. Powers

Columbia Business School Publishing,  December 2011

Much has been written about the ups and downs of financial markets, from the lure of prosperity to the despair of crisis. However, there exists a more fundamental and pernicious source of uncertainty in today's world: the traditional "insurance" risks of earthquakes, storms, terrorist attacks, and other disasters. Insightfully exploring these "acts of God and man," Michael R. Powers guides readers through the methods available for identifying and measuring such risks, financing their consequences, and forecasting their future behavior within the limits of science.

A distinctive characteristic of earthquakes, hurricanes, bombings, and other insur­ ance risks is that they impact the values of stocks, bonds, commodities, and other human-made financial products, while themselves remaining largely unaffected by or "aloof" from the behavior of markets. Quantifying such risks given limited data is tricky yet crucial for achieving the financing objectives of insurance. Powers begins with an analysis of how risk impacts our lives, health, and possessions, and then introduces the statistical techniques necessary for analyzing these uncertainties. He then considers the experience of risk from the perspectives of both policyholders and insurance companies and compares their respective responses.

The risks inherent in the private insurance industry lead naturally to discussions of government's role as both market regulator and potential "insurer of last resort." Powers concludes with an interdisciplinary investigation into the nature of uncertainty, incorporating ideas from physics, philosophy, and game theory to assess science's limitations in predicting the ramifications of risk.

Hardcover | ISBN: 9780231153669 | Publication Date: December 2011

It is a pleasure to write a foreword for this book of both scholarship and humor. It factors in the various concepts of risk, but provides both theory and practical guidance on those 'aloof risks' suitable for insurance. Michael R. Powers manages to create a text for students of insurance while raising the deep philosophical problems in the formulation and application of probability theory.
-- From the Foreword by Martin Shubik, professor emeritus, Yale University, and author of The Theory of Money and Financial Institutions

"Wonderful, witty, and full of insight, Acts of God and Man provides a distinctive, highly readable, and uniquely sardonic perspective on risk, insurance, and the world around us—not to mention our confusing place in it. Powers has produced a real masterpiece."
-- Kevin Dowd, Pensions Institute, Cass Business School, and coauthor of Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System

"An interesting and educational look at risk and insurance, and Power's provocative findings provide an idiosyncratic perspective worth reading."
-- James K. Hammitt, Harvard University and Toulouse School of Economics and coeditor of The Reality of Precaution: Comparing Risk Regulation in the United States and Europe

"Powers has a unique talent for explaining complex matters in a simple way, and his book lays out the fundamental insurance and risk concepts that are essential for success in today's chaotic environment. Even better, Acts of God and Man is enjoyable and a fun read -- rare qualities in risk and insurance literature."
-- Denis Kessler, Chairman and CEO, SCOR Group

"Powers entices readers with an entertaining and engaging narrative, and writes with such clarity and skill that readers almost won't notice the strides he makes in complex issues and dense concepts. Particularly given all the turgid materials on risk and insurance, Acts of God and Man is a breath of fresh air and an impressive achievement."
-- Michael Morrissey, president and CEO, International Insurance Society