Property cat losses were relatively low in 2014. That likely won’t continue in 2015, in part because of the “stupid” decisions customers unavoidably make, a risk management expert said recently.

“You just can’t be stupid – [it] is a challenge that we all face,” said Howard Kunreuther, co-director of the Risk Management and Decision Process Center at the Wharton School of the University of Pennsylvania.

Kunreuther spoke about the issue as part of a panel discussion on Jan. 13 at the Property/Casualty Insurance Joint Industry Forum in New York City.

“We all face enormous challenges dealing with lower-probability, high-consequence events,” Kunreuther said. “Whatever we are doing, we tend to make decisions with intuitive judgments … thinking fast works extraordinarily well for decisions we make. But it works very poorly for extreme events.”

Kunreuther said people face difficulty dealing with deliberative thinking in a sophisticated way when anticipating risks involving extreme events. But it would be preferable if they did, he said.

“There is a notion that prior to a disaster [such as an earthquake], ‘it is not going to happen to me’,” Kunreuther said. “After a disaster, there is a feeling, ‘I am going to buy earthquake insurance’ – after the earthquake and not before. But the likelihood [of an event] is less likely. That happens with almost all insurance policies.”

A few years later, however, customers often cancel their policies, he said, because they see it as spending “all this money and getting nothing back.”

That leaves an eternal question for property/casualty insurers, Kunreuther said.

“How do we convince people that the best return on an insurance policy is no return at all [and] celebrate the fact that you haven’t had a loss? How do we get people to change that behavior?” Kunreuther asked

The answer, Kunreuther said, is to “stretch the time horizon.”

“Tell people that if there is a 1-in-100-year change [of a disaster such as a flood], that if you are in that house for 25 years, there is a greater than 1-in-5 chance you will have a flood,” Kunreuther said. “[It is the] same probability, longer time horizon. People pay attention.”