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How Mesopotamia, Ping Pong and Losses Shape the Business of Scuba
By Ryan Meyer
Many of us have been told that there are only two certainties in life: Death and Taxes.
I remember the first time I heard the expression. I’d been sitting, as a teenager, with my dad on our boat, opining about how I was certain my high-school crush wanted to date me. I was 100% convinced she was interested and having never had a girlfriend up to that point, I took a long time to build up the courage to ask her out. The resulting answer I got from her was ‘no.’ I had been unaware that she (we were both in grade 12) had started seeing an over-developed 9th grader and I had waited too long to ask.
Jaw dropped! My life was the awkward, high-school equivalent of grey. Everything I hoped for stemmed on a ‘yes’ and blind success.
Later that night, I received a phone call and went to the hospital. My grandfather was not well and time was running out. I held his hand in a small hospital bed and watched his last breath expelled, at the age of 86, as he lost his battle with pneumonia just after midnight.
My world was spinning.
Two days later, my dad sipped his small glass of scotch in the galley of our boat, listening to me reel and cry in a hormonal explosion. “I was certain I had her,” I said. “And then losing grandpa… I don’t really know how to take everything.”
My dad said, very calmly, putting his arm over my shoulder, “You can never have anything, let alone someone. Lust is a paper gain that becomes a loss if not reciprocated. Beyond that, I suppose you are old enough to know now that there are only two certainties in life: death and taxes. Your grandfather had a great run.”
Two certainties were impressed upon my 17 year old psyche. Death. Taxes. Grim nouns. Love wasn’t something I understood yet; life was finite and taxable.
Only Two Certainties?
I’m older now (but not too much older!). I work in insurance for First Dive, the least marketed dive insurance program available. With the team we have assembled and the insurance experience we’ve gained over multiple high-profile insurance losses (same kick in the gut you get when a girl you like says ‘no’), we understand the two grim nouns, death and taxes, are indeed certainties within the world as we know it. However, it seems a bit presumptuous to assume there are only two certainties within the confines of our existence.
Nearly everyone in the diving community has heard of Murphy’s Law. If anything can possibly go wrong, it will, and at the worst possible time.
Physical sciences are often governed by equations, as are quantitative financial fields. Think Einstein, Stephen Hawking level mathematics; Schiller models. The Nobel Prize is a big deal and you can win one for math, common sense and a touch of brilliance. In respect of Murphy’s Law, while the work is minimal in relation to other fields of physics, there have been attempts at creating an equation that indeed quantifies Murphy’s Law and can be applied to instances out in the wild with varying degrees of certainty. The Law, which is often considered an adage or epigram, is studied in communities of economics, logic, engineering, etc. – as I push my glasses up and chortle. People much smarter than I pay attention to the law and debate it; the reality of things going wrong is not lost on leading thinkers – it’s what they think about while others combat the logic with expressions like ‘Markets can remain irrational longer than you can remain solvent.’
If you boil the logic of Murphy (or Sod’s) Law, it really says: Whatever can happen will happen!
Such is to say, while we may have been told there are only two certainties in life, death and taxes, we can also assume that some application of Murphy’s Law is also a certainty along with the physics that can be used to quantify the words. The law, which describes a certainty, is likely as old as humanity itself – even if not defined, it lay in wait for an explanation.
The Certainty of Uncertainty Requires Solutions
So, if humanity itself is governed by the physical probabilities that things will go wrong whenever they can, it should come as no surprise that insurance has existed, at least as a concept, for millennia. Indeed, the earliest recorded examples of insurance date back to 3,000 BC in Mesopotamia and China. In its initial stages, insurance was a form of bottomry, defined in the Code of Hammurabi, where ship owners would borrow money from lenders and return the money with interest once their ships arrived safely in port.
Much like today, insurance was used to underpin the economy and provide certainty to a world that has always intrinsically understood that things go wrong and often do.
After existing for 5,000 years, insurance, it is safe to say, as a concept and financial function of risk transfer, deserves to be looked at with a similar certainty to death, taxes, and Murphy’s Law.
There is an old joke that if you want to run with the bulls, you don’t want to be the slowest man in Spain. Having weaker prey around is just as much a risk transfer mechanism as an insurance policy (albeit a cheeky one). Nobody wants a solid goring on their vacation, just like they don’t want to die on a DSD. Holding gold to avoid fiat currency devaluation is speculative risk transfer. Buying an insurance policy is protection against pure risk.
Not all risk transfer is insurance, but all insurance is risk transfer.
Discover Scuba (DSD – a program whose origins are much closer to our place in time than some of these ancient concepts and thusly more prone to error and bad sense) is considered dangerous by insurers because it’s an activity in which all the participants, excluding the instructor, are slowest at the bull run in Spain. Selling life sustaining products (rebreathers/regulators) to the public can make money for the vendor, but these products need to work as intended or the resulting litigation could wipe out the company, like being the richest man in Venezuela walking onto the world stage.
Without multiple means of risk transfer (including insurance), scuba diving would not exist as a business; the ancient shipping routes would have remained unused without bottomry. Would the juice of risk created by these enterprises be worth the squeeze? Likely not.
Things inevitably go wrong, why is it my fault when they do?
If we understand that things will inevitably go wrong, negligence is very much the concept that seeks to point out why they went wrong and who was responsible for allowing Murphy’s Law to rear its ugly head. After all, Murphy’s Law only exists in relation to things that can go wrong. Negligence seeks to assign blame to the party that turned can’t go wrong into can go wrong or assisted can in taking place. Negligence looks for everyone.
It consists of five elements:
A duty of care was owed
There was a breach of that duty of care
There is a causal connection between the defendant’s conduct and the resulting harm
There is a proximate cause which relates to whether the harm was foreseeable
Damages resulted from the defendant’s conduct in doing something a reasonable person would not do/not doing something that a reasonable person would do.
To prevent catastrophic financial losses, dive training agencies require their members to purchase liability insurance to remain in active status.
You don’t pay protection for yourself and the creators of standards, you don’t train.
You don’t buy fire insurance in 18th century England, the firemen let your house burn down and so it rests in ashes.
This is no different a practice than the Mesopotamian ship owners – logical risk transfer at a cost. Safety standards are set, insurance is procured (and should be procured by both the agency and the instructor – which ITI does). Off we go, risk is transferred, commerce and exploration, excitement and adventure can ensue.
But… does the insurance you bought transfer all of your risk?
The short answer is no. The insurance policy does not transfer all risk. Why would it? Money can’t buy everything, why should insurance absolve the same? Some risks can’t be transferred (you can’t insure against criminal actions for example). Other risks are not understood by the majority of dive instructors and retailers or happen so infrequently it’s easy to perceive them as benign. But perceiving something as benign doesn’t mean it is. Doctors misdiagnose moles and the liability risk could destroy your business and financial future.
Things will go wrong – we know that definitely; if they can, they will. Simple mistakes have a tendency to turn into big losses!
What World do you Live In?
Take a moment and look around you. What are you holding in your hands? What are you wearing? What type of room are you in? Have you eaten today? Perhaps you are reading this article on a phone in your hands.
Everything around you is a product that somebody made, somewhere in the world, transported via various methods, marketed, retailed and sold to you or someone else. The room you are in was a product/completed operation which somebody purchased and is responsible for; the owner can incur liability if people are hurt in the room. The phone in your hand is a product created by a large company either foreign or domestic, the clothes on your back quite likely started their lives as thin tensile strands in a warehouse somewhere in China, which were then fashioned into wearable garments, packaged, tagged, stuffed on a boat and transported thousands of miles across the world, distributed to a retail location, put on a shelf and sold.
I bet most people’s clothes have seen more of the world than they have.
The Products of Diving
If you own a store involved in retail sales of diving equipment you are selling something that has potentially travelled the world before it even touches your store shelf. Each item has potentially touched dozens of hands and crossed multiple borders.
Unlike the t-shirt, which can absorb countless knocks and bumps, a regulator or rebreather may not fare so well. If these objects have not fared well, they might just kill your client underwater. A small mistake is a big mistake in an environment where you can’t breathe.
Whose risk are you taking and what risk did you transfer?
Ever play Ping Pong? How about just Pong?
Relative to video games, Pong is as ancient as insurance is to civilization. It only involves a ball being batted back and forth between two white, digital paddles, a game limited by 50 year old ram and graphics. The product supply chain of your business is very much like Pong – multiple games of Pong lined up in a row. The paddles are businesses; the ball is the risk associated with the product those businesses create. Spiking the ball down the court is business; moving from the component manufacturers, pushing risk to the OEM manufacturer, pushing risk to the importers/distributers, to the retailer, to the end customer.
-Illustration of a Simple Supply Chain with the ball getting “Ponged” like the karaoke lyrics ball over Hotel California on cheap Tuesday-
If the product does harm to the customer, the ball (risk) is spiked back up the supply chain to find the party responsible for the defect. The injured customer tries to collect against the retailer, the retailer tries to push the risk back to the importer/distributor, they try to push the risk back to the manufacturer etc. Lawyers get involved. After all, the legal profession has been around since the days of ancient Greece and Rome; as much a certainty as insurance is. None of this is new.
Products liability laws are very much designed to allow injured plaintiffs to collect from multiple parties involved in bringing a defective product into the consumer space. The entire stream of commerce is at risk. But… if you are the retailer and no one else in the supply chain has insurance or they are in a different country, how far back up the chain are you going to be able to hit the ball?
Can you hit it to China?
By selling gear by manufacturers who don’t back up their products with insurance, you are actually trying to play ping pong without a paddle; the slow one in Spain while the bulls run.
Maybe you are taking on ALL the risk of the supply chain without even knowing it or having the ability to control it.
“Taking the liability of everybody else and buying the minimum insurance limits is a sound risk management strategy” -Said Nobody. Ever.
…and yet businesses do it every day without realizing they do it!
The problem is exacerbated if the retailer is also the instructor teaching the use of the product. This creates liability potential for both the sale of the unit and the instruction of its use. It makes this individual in the supply chain an easy target for litigation which will seek to show how this party breached its duty of care. Arguments can be framed to gain access into the easiest pockets and the smallest pockets are the least protected.
Many rebreather manufacturers don’t have insurance.
Many instructors sell gear but aren’t insured for gear sales.
Many business owners leave their business uninsured completely and purchase a personal instructor’s policy not realizing it doesn’t protect their business.
All of these issues can be corrected and transferred.
The dive industry is unique in that procurement of insurance for life sustaining equipment manufacturers can be difficult (and expensive) compared to manufacturers of simple goods and often the customer base is not large enough for many small players to adequately transfer their risk and keep a positive balance sheet. Many instructors don’t do enough volume to support the cost of insurance risk transfer and purchase either sub-standard coverage, or the wrong (technically), cheaper coverage.
Ping Pong doesn’t work as well if played without paddles.
The Price of Protection / The Limit of Safety
Accepting insurance is a necessity, based on the certain need for risk transfer, and that it is a 5,000 year old concept that radically affects everything around us. It’s important to question what is being purchased, why it is being purchased and what specifically it protects against. Many a mind have paid many a dollar for nothing (or not enough) and never realized it.
Does the M.V. Conception, holding 34 passengers, need more than $2 million in liability coverage? That accident came like a pale horse and hit us all with a punch to the gut.
Nobody wanted that to happen.
But headlines speak while courts and lawyers react and 34 x $300,000 = $10,200,000 – a modest sum for a life or the aggregate of lives. Tragedies hit the heart first, social media reacts and then the courts talk to make money sing. Only $2 million of that terrible loss is transferred to insurers (it made headlines). It’s important to know: someone will hold the bag for the loss, people will lose their jobs or potentially their businesses. And when it’s done the world will turn and the realities will stay the same. Risk can be transferred but enough needs to transfer if you want to run faster than the bulls.
Should a retailer sell products or an instructor train with products from a manufacturer that doesn’t also procure insurance? That question can only be answered by the individual engaged in the activity.
It depends on their risk tolerance.
Not many of us deliberately start a business with the intent of being sued or going bankrupt but it happens every day and the availability is there to protect how you wish.
These questions have been asked for millennia; the ability for humankind to question is as certain as death and taxes – the grim nouns we discussed. Opposable thumbs and the ability to question are traits that separate us from animals. These questions are part of our evolution; as old as humanity itself. The certainty that things will go wrong is just as old.
Scuba diving is a wonderful business.
If people didn’t love scuba diving, there would be no need for a team like First Dive and a company to insure scuba divers. If there was no desire for tea, people would not put it on ships and move it around the world. Our success is predicated on your success; your good decisions can make our decisions look good in choosing to insure you. The point of this article is for people, aware of death, taxes, the inevitability of loss and unrequited love, to talk as comrades, to make the industry, its participants, its pioneers and business owners safer from the certain uncertainty of the world we live in. There was never a need for a pale horse and there never needs to be.
Whatever can go wrong, will go wrong but we all have the power to minimize the effects if we take the time to understand the risk. I don’t know whether Murphy carried insurance as he toiled away to create a law that explains something we all understand. I’d imagine he did carry insurance and that he discussed it in depth. I imagine if Murphy played Ping Pong, he’d make sure to bring two paddles because one might not be enough.
Whatever can happen will happen and is happening now. It’s going to happen in courts on the world stage and change the rules. There is no need for a pale horse to shape the scuba business, but there is need for logic and thought beyond the simplicities of business for profit before safety. Scant belief in the minimum could prove us all wrong. There is risk in the confidence that somebody loves you and risk in the vulnerability that comes with confidence.
“Taking the liability of everybody else and buying the minimum insurance limits is a sound risk management strategy” -Said Nobody. Ever.
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