Back `25 to 30 per cent cost reduction possibilities' in insurance
INSURANCE is hot news; more so, when the world's biggest insurer AIG's financial dealings are under a cloud. Thus, the day's story is about the company's ex-chief Maurice `Hank' Greenberg keeping mum in front of regulators probing allegations of AIG using `smart' reinsurance deals to massage its financial results.
Warren Buffett has also been questioned in this connection, and there are reports speculating that the billionaire icon of investing had tipped off the regulators about Hank, which eventually resulted in a boardroom coup and got him out.
To track cases such as these, you'd need to know how insurance works. Quite belatedly, the Institute of Chartered Accountants of India saw the merit in including `insurance' in its scheme of things, and started a post-qualification course called DIRM.
To get a jumpstart in the subject, get hold of Corporate Insurance by Sharada and V. Kumaraswamy, from Tata McGraw-Hill (www.tatamcgrawhill.com). The book, billed as `a primer for business managers, CEOs and CFOs,' dissects insurance policy into its components, describes the different types of covers, and discusses answers to tricky questions such as, `Is insurance worth the expenditure?'
In preface, the authors highlight that there is a lot of wastage arising out of mismatch in coverage and premium paid. Alarming, it may sound, that `there are 25 to 30 per cent cost reduction possibilities.' A chapter of great use, therefore, is `cost saving and optimisation', where you get to know the other options: Self-insurance, captives, risk-sharing and mutual aid, deductibles, excess and franchise, and first loss.
"The best insurance policy for tomorrow is to make the most productive use of today. A lot of what passes for depression these days is nothing more than a body saying that it needs work," said Geoffrey Norman.
If you're depressed about your ignorance on insurance, this insurance book can be just right for you to work upon!
Economics of nervous systems
IF YOU have always believed that economists have no mind of their own, even as they mind everybody else's business, Paul W. Glimcher proposes that everybody can access economics to understand what goes on inside of us. He's the Associate Professor of Neural Science and Psychology at the Center for Neural Science, New York University, and his book titled Decisions, Uncertainty, and the Brain, from The MIT Press (http://mitpress.mit.edu) looks not at the soul of economics but the converse.
Biologists have returned to economic theory to study "the decisions animals make about what to eat or with whom to mate," is a line that can shock economists from whatever they're doing. "Economic theory allows us to define both the optimal course of action that an animal could select and a mathematical route by which that optimal solution can be derived," explains Glimcher.
At the middle of the book is `a determinate billiard ball world' — where things are governed by deterministic equations. And there are both inanimate balls, and the animate ones whose genetic fitness can be easily computed. "The nervous system of the white ball should select an initial movement, setting off in a single direction at a fixed initial velocity. That direction of motion will bring it into contact with one or more other balls, which will result in a fixed and entirely predictable set of collisions." If you stop the game to listen to Glimcher, you'd learn that the goal of our behaviour — to maximise `inclusive fitness' — is what the billiard balls teach us. "The thesis of the book is that the fundamental limitation which neurobiology faces today is a failure to adequately incorporate probability theory into the approaches we use to understand the brain," writes the author. For, once you understand the relationship between behaviour and the brain, you can figure out the why of decision-making.
The economic vision of `rational' man who selects the optimal course of action is a rarity, because humans often seem to do "a poor job of estimating probabilities correctly", and so end up with `bounded rationality'. Glimcher's argument is not that brain can solve any problem optimally, but that "animals produce behaviour, within their environments, which fairly efficiently achieve the goal of maximising fitness." Here's where he marries economics to the nervous system: "Economics is a tool for defining the problem that an animal faces or the goal that it should achieve. It is the functioning of the nervous system which achieves that goal within the animal's environment." Ideal read, if you're uncertain!
Of doubtful value
NORMALLY Jaico (www.jaicobooks.com) brings out good books, but a recent one, titled VAT: A way out of the Indian muddle, by Dr G. K. Pillai, may stand out as an exception. Because it has been overrun by this month's developments. Perhaps, Pillai was pessimistic about the implementation of VAT. To complicate the readers' woes, chapter 1, presumptuously titled `Vision-2100' is a ramble about galaxy, clones, nanotechnology and so on. As if to be consistent, chapter 2 is `taxman's horrorscope'. Thereafter come a few chapters on VAT, which do not obviously factor in the present law. Fortunately, therefore, `conclusion' comes in the middle of the book, with the second half reproducing excerpts from committee reports and so on. Good to swat with!
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