Planning for Resilience

 In Insurance, Legacy

It wasn’t likely that in 2020 a global health crisis would have huge health, social, and financial impacts, but here we are. It’s not easy to prepare for these unlikely but very serious possibilities. What can we learn about the surprising impact of the novel coronavirus?

Wimbledon’s Insurance Coverage

The famous Wimbledon tennis club reacted to SARS in 2003 by adding coverage for a disruption due to a pandemic. They have been paying $2 million a year for the coverage and are reported to be receiving a $141 million insurance claim. They are cancelled but should be fine since they were covered, unlike many other businesses and events.

The kind of decision Wimbledon made is a prudent one in hindsight, but some of the warning signs have been there. In addition to SARS, there have been other smaller-scale health crises to note. There was even a major Hollywood movie, Contagion, that painted one possible scenario. Surely, Wimbledon’s insurer did a thorough analysis to determine what premium they would charge for the coverage, but why is that sort of planning and foresight so hard for the rest of us?

Why is it so hard to plan for this?

In a Globe and Mail article, Dan Gardner notes, that “In theory, being prepared for low-probability, high-consequence events such as a pandemic should not be difficult. Identify threats. Consider how to mitigate. Weigh costs of mitigation against probability and consequence, factoring in available resources and competing demands. Prepare.” Why is it so hard to be that rational?

Some of it comes down to the neuroscience of these events. There has been significant discussion and research such as Nassim Taleb’s Black Swan and the cognitive bias called the “neglect of probability.” Even when it is known that most of us have a really hard time addressing these possibilities, it can be so hard to break through our hard-wired mental approaches to risk.

It doesn’t help that most often we’re better off ignoring low-probability but high-consequence events. Each year we don’t put aside for that rainy day or pay that insurance premium, we’re better off in the short term. But given long enough, the highly improbable becomes inevitable. At its heart, this planning is about narrowing the range of possible outcomes.

Emergency Planning

While we are all suffering the broader effects of governments not being fully prepared, there may be a chance to take this broader lesson and bring it to a personal level. If you’re still in the reaction mode of dealing with the current catastrophe, it’s okay just to focus on a damage-control plan to get through things. If you are in damage-control mode: how is your emergency fund? What changes to your spending can you make to help get you through things? Are you personally or is your business taking advantage of the stimulus and support programs available? Are your long-term savings goals still on track? Do you need to make adjustments there?

If you feel stuck or are having problems with the above, contact us. We may be able to help directly or if not, we can certainly give you some guidance in the right direction.

Doing Estate Planning During COVID-19

But if it’s not full-on crisis mode and you have the bandwidth, focusing in on your personal bigger picture could help you prepare for other future events. There are possible scenarios of many kinds, but take your own health and mortality: these aren’t pleasant topics so it’s normal that most people don’t wake up and think, “Today is the day I think about my chances of getting sick or dying.” But maybe it’s more front of mind with all that’s going on.

You can do a 1-minute assessment of your risk here: What’s Your Risk

We’ve seen how just reacting to an event is much more difficult than preparing for one, so hopefully we can help you have a look at how you are set up to face unlikely but catastrophic events by offering rational analysis and risk mitigation. It won’t make the event any less upsetting, but it just might help take the financial sting out.

This article also appeared at EthicalPlan.

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