An interesting discussion on risk. Here's another consideration, you can self-insure to an extent by changing processes to minimize risks. If you must charge $10 to wash a Ferrari because your risk model says that it will cost you $5 in mistakes, use a different process to lower mistakes. Let's say that instead of the standard wash process you use for regular cars, you take extra time on the Ferrari, using your best washers and new materials. Now, the risk goes down from 1 in 2,000, your risk is 1 in 10,000. Now you can charge more for the special, risk-averse treatment and only a $1 risk surcharge on top of that.
Effective risk management doesn't just mean that you protect yourself against "bad things". The ability to manage risks better than your competitors is a competitive advantage. I heard it best described as the brakes on a sports car. Good brakes let you take corners faster.
Just a nitpick, 'cause it was on my mind. 5$ might have been that "different process to lower mistakes". I was wondering how it could still just be $5 to manage risk of damaging a ferarri, myself.
I'm having a difficult time parsing your comment. The $5 from the article was the cost of paying out $10,000 1 in 2000 times. If a different process costs $5 to implement, then they might as well accept the risk as is.
I was trying to say: "What if they've already reduced their risk as much as is reasonable, except for special cases that they see one day every three months: that Ferrari."
Effective risk management doesn't just mean that you protect yourself against "bad things". The ability to manage risks better than your competitors is a competitive advantage. I heard it best described as the brakes on a sports car. Good brakes let you take corners faster.