Insurance and Financial Services Professionals

Briefly describe your career field or a field of interest to you.
Both the insurance and financial services industries play a very critical role within society. As it relates to insurance companies, they help to safeguard and mitigate loss relates to unexpected events. They also help to lessen the financial burden associated with the eventual recovery from the loss event. Earthquakes, Floods, Hurricanes, and other natural disasters are very difficult to predict on a year to year basis. Even more uncertain, is the severity of the damages associates with such an event. Many families in the United States live paycheck to paycheck and can not afford an unexpected $500 expense. Insurance is designed to lower the overall uncertainty that can result when an insured loss event occurs. Insurance covers the risk that individuals or corporations are unable and unwilling to cover themselves. As many of these risks can be very severe, it is important to have a strong and vibrant insurance industry that can endure an economic catastrophe. We saw in 2008, when the credit markets froze how important both insurance and financial institutions were to the global economy. Many banks and insurance companies including Bear Sterns, Lehman Brother, Long Term Capital Management, and others went bankrupt. As these forms when bankrupt it threatened the overall viability of other insurance and banking institutions. AIG for example, was forced to accept a large government ownership stake or it would have gone bankrupt. The 2008 financial crisis underscores the importance of not only having strong insurance industry, but also that the industry can remain viable under extreme stress.
The same concept applies to financial institutions. Here, financial institutions act as intermediaries between investors and savers. Individuals with high amounts of savings are often looking to deploy that capital into activities that can yield high rates of return. Likewise, businesses are often in search of capital to expand operations or to invest in new product development. Financial institutions, and, investment banks look to marry savers in search of investment returns with businesses looking for capital to deploy. This exchange ultimately increases the quality of life of society as banks can facilitate the exchange of capital to business who produce goods that are demanded by society. The saver benefits through a return on investment. The business benefits through access to capital and society benefits through innovative products and solutions that increase profits for shareholders. Banks also preform the critical task of safeguarding and enabling mission critical task that keep the economy moving forward. These include auto loans, mortgage loans, automatic bill pay, direct deposit services, retirement services, brokerage services and more. All these services are required for a fully functioning economy to prosper and are therefore critical to its overall development. As an analogy, financial institutions are the oil that powers the economic engine.
Explain what drew you to this field.
As noted above, the 2008 financial crisis was a fascinating period in economic history. In U.S. history that has never been such a period as it relates to overall markets. Credit markets froze, there was widespread speculation in an asset class many believes could not decline. Regulations, oversight, and underwriting standards are were extremely lax. Even the auditing and credit rating agencies were partially at fault. The 2008 financial crisis is what Charlie Munger, Vice Chairman of Berkshire Hathaway, calls a “Lallapaloosa effect.” Here, multiple variables were coalescing to create a single dramatic outcome, which was a recession.
I am personally very interested in the financial markets and individual human behavior with them. The financial markets are unique in the sense that new events and behaviors occur daily. In many instances, the theories that underlie these events rarely, if ever, play out in the way they are described in the text. For example, in response to the 2008 financial crisis, central banks around the world engage in a program called quantitative easing. Here, central banks purchase financial assets from financial institutions in to help lower yields while also increasing the money supply. Many experts, finance professors, and pundits believe widespread inflation would ensue as the money supply was increased. Instead, over the past decade, inflation has remained below 2% each year. I enjoy watching outcomes unfold in the financial system as they are rarely what others believe. Even economic predictions tend to amount to no more than a coin flip as these “expert” predictions are often only correct half the time. I am drawn to the field as I first enjoy the natural vicissitudes of the stock market. I also enjoy exploiting any irrational behavior in asset prices by purchasing securities below their intrinsic value. I also enjoy reading financial publications and watching how events unfold overtime. Finally, I enjoy learning about finance to better protect my overall financial future.
Examine the impact of past, current, and developing technology in your field, providing specific examples.
As it relates to technology, innovation is creating massive upheaval within the financials services market. Although the basic service of facilitating financials transactions is still the same, the way it is delivered has changed dramatically. Technology for examples has created much more accessibility to financial services to the general population. The proliferation of mobile applications such as Robinhood and Acorn have allowed retail investors to gain much more access to the stock market with limited amounts of money. Mobile banking and online bill pay have created market efficiencies as consumers no longer need to travel to bank branches for routine transactions. In the past, consumers needed bank branches and tellers to help facilitate everyday transactions such as account transfers or processing checks. With technology these trips to branches have been eliminated and can now be conducted through the phone. Even now artificial intelligence is being used by banks to provide investment products to consumers that automatically adjust investment portfolios given market circumstances. As it relates to the future, crypto currency is beginning to have more prevalence as a medium of exchange. This new technological innovation is gaining prominence throughout the developed world. Individuals are currently using crypto currency to purchase routine products such as groceries, electronics, and other small items. As crypto currency gains widespread acceptance as a unit of exchange, many financial institutions will look to review their own policies around the innovation (Brown, 2017).
Insurances has had a very similar history with innovations. Although the overall services remain the same regarding mitigating risk, the way this service is delivered has changed through time. From a risk perspective, technology has enabled insurances companies to more accurately predict, price, and assess risk. Prior to the technology revolution, insurance companies did not have the means to run sophisticated financial models and predictions in the manner that they do now. Currently, insurance companies can now better segment populations who are higher risk and can therefore increase and lower insurances prices to better adjust for risk. With artificial intelligence, insurance companies are now able to use weather patterns to more accurately predict hurricanes and their overall severity. In the future, insurance companies are looking to expand their ability to garner data from the individuals in which they insure (StateCE, 2017). For one, insurance companies are developing technology that allows them to see driving behavior through devices that can be implanted into a vehicle. In exchange for implanting the device, the individuals could potentially receive a reduction in their insurance rates (Portenous, 2019).
Discuss the importance of remaining current in technology and other developments in your field.
It is very important to remain current within financial and insurance technology to better analyze the merits of each product. In some cases, particularly with Wall Street products, the incentives may run counter to the interest of the actual customer. For example, wall street created a financial innovation called the Mortgage Backed Security in 2008. Essentially, this security pooled mortgages together to form a pool of assets. This pool was then sliced into various traches with differing yields and risk. The lower traches offered investors with more yield, but they were more susceptible to pre-payments risk or other forms of loses. The higher tranches received lower yields but much higher security. This “innovation” allowed pensions funds and other institutions clients to participate in the booming housing market. The asset diversity allowed credit rating agencies to rank many of these financials innovations as AAA. Consumers also purchased these securities to further participate in the housing market boom. However, very few people understood the underlying assets that were behind these securities. As the housing market collapsed this “Financial Innovation” quickly lost 90% of its value. It is therefore important to understand the overall incentives behind financial innovations and developments to make sure they align with an individual’s investment goals. All too often however, speculation and greed give way to the actual evaluation of new financial products (Chorafas, 2009).
It is also important to remain current on technology in the financial services industry to better understand how the industry will evolve. As noted above, financial institutions are very important to facilitating financial transactions. Technology is a key component of this mandate. As a result, staying current on technology allows consumers to leverage any new technology for their benefit.
Explore ways to get and remain current in your field as you move toward a degree and as you are working in the field
The best and most practical way in which to stay current is to subscribe to various financial publications. To stay current, I intend to subscribe to the Wall Street Journal, Barron’s, and the Economist. In addition, I intend to leverage financial news websites daily such as Yahoo Finance and Morningstar.

References
1. Chorafas, Dimitris N. Financial Boom and Gloom: The Credit and Banking Crisis of 2007-2009 and Beyond. New York: Palgrave Macmillan, 2009.
2. Brown, B. & Kim, J. (2017). Understanding Millennials Mobile Shopping Behaviors: An Implication for Insurance Industry. The Journal of International management Studies, 12(1), 71-82.
3. Portenous, C. (2019, Oct. 8). Technology is Changing Insurance for the Better. Entrepreneur. https://www.entrepreneur.com/article/340297
4. StateCE (2017, Oct. 30). How Millennials are Changing the Insurance Industry. https://www.statece.com/blog/insurance/how-millennials-are-changing-the-insurance-industry/