The Ostrich in the Room – Data Avoidance
Have you ever been confronted with information that you would rather not believe because it changes your view of career-long held “truths”? Risk and claim managers naturally cling to their tools and methods for reserving and settling claims. But what if data driven technology changes the calculus and potential outcomes?
Have your risk management efforts become an exercise of managing incomplete or inaccurate information? Or, is it a more conscious effort of deliberate, thoughtful planning utilizing the latest techniques and methods?
Just like Jack Nicholson’s Colonel Jessup in A Few Good Men says, “You can’t handle the truth!”. What if analysts and managers are so efficient at avoiding some information that it might as well not even exist? Psychologists call this behavior “information avoidance.”
Researchers from Carnegie Mellon University in their recent paper “Information Avoidance: How People Select Their Own Reality” published in the Journal of Economic Literature, have identified key approaches that people use to support their own versions of reality. It is a common belief that rational people would always want to have more information to make informed decisions, but that is often not the case. In fact, people actively avoid information that they feel might threaten their sense of stability, security or happiness.
If we assume that this theory is true in life and business decision-making including risk management, then it could explain some of the reluctance to explore better alternatives by risk and claim managers. Let’s say a risk or claim manager is aware that non-occurrence related claim data affects the ability to measure and negotiate a final settlement. And let’s also say that they are aware that they should obtain the information and measure it as soon as possible after the occurrence. However, they don’t because they have always been taught (and are supported by existing systems and techniques) that they should only obtain the occurrence related information, then “wait and see what develops”. This is not a good strategy.
By sticking your head in the sand about any information, the risk and claim professional is creating an environment where the settlement will be later compromised. The proper approach is to measure all causation and medical information as soon as it is received. Expectations about resolving the case will be established at that time, and it is far easier to manage the eventual outcomes to the benefit of all parties.
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