Risk Management as a Process: An International Perspective

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The journal article titled “Risk Management as a Process: An International Perspective” by Michael Theil and William L. Ferguson was published in the Review of Business, Vol. 24, 2003. This article explores the influence of cultural factors such as values and norms, religion, nationality, and political structures on the process of risk management. The purpose of the article is to provide insights into risk perception and evaluation across nations with different cultural aspects, particularly with respect to the use of insurance as a primary risk management tool.

Culture can be defined in many ways. The methodology used in this paper is mainly a literature review with some graphic tables. This paper draws on Park’s 1993 analysis, which studies insurance demand from the viewpoint of cultural theory. Compared to the wide scope of the subject of risk management, life insurance, on which Park focused, is quite a narrow field of study within the spectrum of risk management. However, the transfer of risk through an insurance mechanism is one of the main tools of risk management and hence the importance is given to insurance in the context of risk management. Perceived risk and the way in which people handle risk depends to a large extent on culture. In this paper, Park’s 1993 analysis based on Hofstede’s cultural dimensions is used. In particular, concepts such as uncertainty avoidance and individualism-collectivism are incorporated in this paper along with more concrete factors such as values and norms, religion, and nationality.

The basic findings of this study are as follows: Values and norms play an important role in the perception, and (re)distribution, of risk especially in deciding the relative level of personal versus societal responsibility. Risk management and modern forms of insurance can be seen as products of the “Western” culture. The term “West” is based on its Judeo-Christian religious background. Successful insurance market development has been found positively linked to Protestantism. In Islamic countries, because of belief in destiny, risk management is perceived as against the will of God. In Islamic countries, there are laws according to which decisions have to be made thereby making individual decision-making unnecessary. Risk perception and risk evaluation are mostly independent of nationality or of the place of living. But when the risks are more specific, then people from different countries tend to differ in their evaluation of risk. Risk perception and evaluation are significantly influenced by media coverage. Nationality or place of living plays an important role at the economic reference level. Poorer countries tend to spend less towards risk management.

Insurance can be seen as a measure of risk management. Greene’s “insurance mindedness” tool helps in identifying factors that influence risk perception and insurance demand. Park was a researcher who linked differences in insurance holdings across different cultures with the attitudes of people towards fatalism and societal risk-sharing. It is because of the difference in culture that pension insurance is provided by the government in most EU countries whereas alternate systems are available in the US, Switzerland, and UK. According to Islamic law, insurance based on interest is unacceptable. Hence, Shari’ah-compliant takaful insurance, which avoids haram concepts of interest, is very popular in Muslim countries. Early Christianity also forbade interest or usury. Thus, religion has a direct hand in insurance dealings. Despite such opposition from religion, there is momentum for modern insurance to develop and rise because of the changes in society and the values and norms held close to the younger generation. The authors feel that insurance dealings are affected most by national political programs. In Japan, it was government reform that placed the responsibilities of retirement with the individual. Moreover, it is found that Japanese people continue to spend a relatively constant amount of their disposable income on life insurance. Likewise, India and China also provide interesting case studies in the context of insurance in the risk management process.

The article is well written and has a logical structure to it. The paragraphs are well structured and information is spread out coherently. The article is very simple and all terms are well defined and explained. Numerous studies have been cited and the research is exhaustive. The main drawback of the paper is that there is no proper survey or mathematical deduction based on which the findings may be listed. Instead, the authors cite various other studies and draw conclusions.

On a personal basis, I feel that this paper has added to my knowledge of the risk management process. This article helps me understand the various stages in the risk management process and how they can be applied in real life. Several cultural factors play a huge role in the perception, analysis, quantification, and response to risk management. These factors may be socioeconomic factors, including values and norms, religion, and nationality. In the context of insurance, one finds that the evaluation and perception of risk depend on various cultural factors and hence differs from country to country.

Article

Theil, Michael and Ferguson, L. William (2003). Risk Management as a Process: An International Perspective. Review of Business. Volume: 24. Issue: 3. 2003. Web.

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Risk Management as a Process: An International Perspective

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