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Chapters 2 and 3 focus on the organizational strategies of insurance firms. Chapter 2 analyzes the disparity between transnational and domestic life insurance firms’ strategies. Insurance firms from both camps faced a conflict between local preferences and profits when designing their products. However, they handled this conflict very differently. While transnational firms defined life insurance as modern risk management, and offered products for managing unexpected misfortunes; domestic firms defined life insurance as money management, and launched products for savings and investment purposes. The former adopted a profit-oriented model by attempting to change local preferences; whereas the latter took on a market-share approach by accommodating local preferences. Through a chronology of the ebbs and flows of the market’s development, this chapter demonstrates the tension between the local cultural logics and the profit-oriented institutional logic of life insurance. It documents the battle between the transnational and domestic players in the field, explaining how their battle is rooted in their different ways of handling cultural obstacles, and in their divergent institutional logics of operation.

This chapter focuses on the distribution of disaster costs and benefits over both the short and long run, and looks at the humanitarian consequences of earthquakes, floods, drought, hurricanes and other natural hazards. The chapter discusses the rise of financial instruments such as disaster-risk insurance and risk-linked securities, which transfer disaster costs onto global capital markets. It examines the political-economy constraints that prevent the scaling-up of such financial products, and questions the role of public-private partnerships in overcoming these barriers.

This chapter surveys transformations of uncertainty into calculable risk from the 1920s to the early twenty-first century, beginning with economist Frank H. Knight’s influential 1921 work Risk, Uncertainty, and Profit. It focuses on the emergence of war risk insurance, weather insurance, and crop insurance in the 1910s and 1920s as both manifestations of a cultural recognition of the unpredictability of economic life and new forms of risk management. The chapter briefly examines federal risk-management efforts during the Great Depression and World War II as well as Cold War forecasting and futurism. It concludes with a discussion of how probabilistic forecasting, big data, and predictive analytics have promised new, ostensibly objective, methods for calculating the future in the late twentieth and early twenty-first centuries but are actually shaped by and indeed perpetuate their ideological, political, and cultural contexts. The chapter ends with a consideration of the failure of pollsters and political commentators to predict the result of the 2016 US presidential election.

This chapter examines complex probability distributions whose shapes make them appropriate for characterizing insurance and other financial risks. In particular, it introduces two important families of distributions: the Pareto family and the symmetric Lévy-stable family, both of which are frequently used to model particularly “risky” random variables with heavy tails (i.e. with large amounts of weight spread over the more extreme values of the random variable). To describe the measurement of risk, the chapter begins by defining the statistical moments of a distribution. It then shows how these quantities are used to compute the expected value (mean), standard deviation, and other helpful parameters.

This chapter argues that the problems of risk, which form the basis for insurance and other financial services industries, all flow from the same source: the specter of mortality. Professional risk managers often construct extensive lists of pure and speculative risks, including every imaginable type of uncertainty to which individuals and firms are exposed. However, despite the great number of individual sources of risk, there are only a very few exposures subject to risk. These fundamental exposures are life, health, and possessions. The life exposure underlies all traditional insurance policies, whether held by individuals or commercial enterprises, because the policies are designed to provide reasonably quick medical attention or restitution of property, presumably before the policyholder's life terminates. The remainder of the chapter discusses the ways to depict the risk of mortality and the possibility of protecting the life exposure from all mortality risks.

The chapter first shows how the spiritualized version of prosthetics originated in the Civil War, which rendered approximately 60,000 veterans limbless. Prominent physicians such as Oliver Wendell Holmes, Sr. and S. Weir Mitchell postulated that artificial limbs gave both physical and emotional solace to shattered soldiers, especially among those who suffered phantom limb syndrome. The devices’ “spiritual” potential proved limited, if not illusory; in fact, they were often so fragile, cumbersome, and painful that amputees simply preferred to go without them. Upon entering World War I, the United States created a rehabilitation and vocational program that aided injured veterans to reenter the workforce. Reflecting the way in which “personality” had come to replace a more traditional notion of spirit, orthopedists such as Joel Goldthwait and David Silver, both employed at Walter Reed Hospital, designed artificial limbs for both physical and psychological compatibility.