Navigating an Uncertain World Kevin Mason, EVP Solutions | Jul 23, 2020

Insurance Worldwide

2020 continues to unfold as one of the most challenging environments to navigate in recent memory. We are facing a pandemic with multiple waves, social unrest over injustice and inequality, a trade war between the two largest economies, and an unfolding presidential election. Markets are spooked as large swaths of the economy have been shut down with no end in sight. As experts debate the shape of the recovery (who knew checkmarks were a thing), the economy is in recession teetering on the brink of depression. All of it makes Baby Boomers yearn for the relative peace of the Sixties.

Despite the turbulence, Instec sees areas of opportunity opening up in the commercial insurance market, primarily concentrated in the program business and specialty markets. We see entrepreneurial firms navigating the treacherous waters around them and not only surviving the current environment but thriving. They have been able to see what others miss. How? By setting aside their fears and retaining the ability to think clearly through the issues. 

Daniel Kahneman wrote one of the seminal books on thinking in 2011, called Thinking Fast and Slow. It is one of the best references on how the mind works I know of1. In the book, Kahneman writes about humans having two minds, System 1 and System 2.

System 1 is the mind we use the vast majority of the time. It is efficient in that it uses less energy than System 2 by using heuristics, and rules of thumb that are embedded in it (think of a rule like if I see a lion on the Savannah, I am going to run away). The issue is that System 1 is controlled by the more primitive features of our brain that process emotions such as fear and automatic responses such as fight or flight. System 1 is also error-prone and the source of most thinking biases such as confirmation bias. Because it lies just under our normal thinking, we are unaware of System 1 running2. Media and marketing are experts at using phrases and catchwords designed to trigger System 1 thinking without us knowing it.

System 2, in contrast, requires lots of energy to use3 and is difficult to engage. It allows us to make complex decisions involving multiple dimensions that are non-binary. It lets us think in probabilities4. What is needed to navigate the complexities of today’s world is for us to move out of System 1 thinking and into System 2. At Instec, we do this through scenario planning.

Scenario planning is a technique that lets you model the future by making certain assumptions about critical uncertainties and then understanding the implications of those assumptions if they turn out to be true. It forces System 2 to be engaged by the use of deliberate thinking. It creates awareness and focus. As Instec looks at the commercial insurance environment, we see changing roles within the value chain and prevailing business conditions (e.g. hard or soft market, growing or contracting risks) as two critical uncertainties businesses are navigating.

Instec believes that it is more critical than ever to engage in clear rational thought as we collectively navigate the complex and wicked problems5 we face in the future. To that end, we intend to share these scenarios in a variety of channels during the upcoming months.

By discussing the scenario logics clearly and rationally, we will collectively engage our System 2 and lay to the side our irrational System 1 minds thereby allowing us to reclaim our ability to navigate the uncertainty that is today’s environment6.

1 Another great book on the subject is Mastermind: How to Think Like Sherlock Holmes by Maria Konnikova who describes how to use the scientific method in your everyday thinking.
2  This is why many people have their best ideas in places like the shower. As they disengage System 2, System 1 keeps chugging along solving problems and making associations. 
3  Some studies have shown that while the brain is 2% of body weight, it can use as much as 20% of the body’s energy use or approximately 300-400 calories. For more information, see research conducted by Dr. Marcus Raichle
4  For more information on probabilistic thinking, I recommend Annie Duke’s Thinking in Bets and Maria Konnikova’s The Biggest Bluff, both of which examine probabilistic thinking from the standpoint of poker. 
5  For more on wicked problems, see “Strategy as a Wicked Problem” by John C. Camillus in Harvard Business Review (2008).
6  A good book that discusses uncertainty is Radical Uncertainty by John Kay and Mervyn King. It also discusses the limitations of probabilistic thinking in conditions of extreme uncertainty. 

Kevin Mason has worked in many aspects of software development since 1981, including roles as product strategist, software development methodologist, project manager, and technology architect for companies such as Cincinnati Bell Information Systems, SHL Systemhouse (now part of EDS), AGENCY.COM, and GENECA. He joined Instec in 2008 and is responsible for development associated with all products. He holds a BA in Political Science, from the University of Iowa and an AS in Computer Science.