Black Ice: Navigating Risk and Opportunity Amid Market Turmoil
6 min read
It should be no surprise that the murder of a CEO has cast a harsh spotlight on the insurance industry—a sector already under fire for its high rejection rates and profit-centric practices. Simultaneously, insurance stocks have taken a significant hit, with the sector down over 7.75% in the past two weeks. However, history often shows us that moments of crisis and market overreactions create opportunities for bold investors. As the saying goes, "When there's blood in the streets, buy real estate."
But there's more to this story than just market movements. We are also witnessing a profound shift in how decisions are made—both in the insurance industry and in society at large—with artificial intelligence increasingly playing a dominant role. This shift raises important questions about how AI-driven decision-making impacts industries and humanity.
In this post, I’ll take a swing at exploring: the historical lessons from crises, examining the current turmoil in the insurance sector, and to reflect on the growing reliance on probability-based AI systems that shape our world in ways both subtle and profound.
Historical Context – JFK’s Assassination
By no means am I attempting to compare the magnitude of suffering between events or to equate one tragedy with another. However, on November 22, 1963, the day of President John F. Kennedy's assassination, the stock market experienced significant turmoil. The New York Stock Exchange (NYSE) faced a massive sell-off, with the Dow Jones Industrial Average dropping 2.89% as panic selling ensued. Trading was halted earlier than usual, with the NYSE closing at 2:07 PM EST to prevent further losses.
Remarkably, within a week, the market rebounded and began to rally, driven by who really knows what. Maybe it was America’s economic resilience, or the collective will to move forward, or its uncanny ability to prioritize financial recovery. That year, the S&P 500 finished at 22.80% for the year. This historical example highlights how markets often recover quickly from emotionally driven sell-offs, providing opportunities for those who take them.
Similarly, this months turmoil in the insurance sector, while alarming in the short term, may ultimately reflect a temporary panic rather than any real permanent downturn.
The Insurance Sector and the Role of AI – Cognitive Indifference in Action
The insurance industry has long relied on actuaries, data and probabilities to assess risk. But with the advent of artificial intelligence, this reliance has evolved into something more precise—and perhaps more impersonal. Companies now use AI to analyze massive datasets, assessing the likelihood of claims and determining whether a customer will receive approval for a procedure or payout.
This shift represents what I might call cognitive indifference—a state where decisions are made based purely on cold, calculated probabilities, detached from human intuition or empathy. Cognitive indifference occurs when reliance on data-driven systems, like AI, prioritizes efficiency [“profits”] over the nuanced understanding of individual circumstances, often at the expense of humanity and fairness.
For example, an AI system might determine that approving a costly child’s heart surgery has only a 20% chance of yielding positive results and always deny the claim, even though a human decision-maker might consider factors like the patient’s unique circumstances or quality of life.
While this approach improves efficiency and accuracy, it also raises concerns about fairness, humanity, and creativity in decision-making. The insurance industry’s reliance on AI mirrors a broader societal trend: an increasing dependence on algorithms to guide our choices.
Much like assembly-line furniture lacks the craftsmanship and care of a handmade wooden chair, AI-driven decisions lack the nuanced touch that can sometimes lead to exceptional outcomes. Just as a consumer can feel the difference between a handmade chair and one mass-produced from compressed sawdust, we may one day recognize the intangible value lost when humanity relinquishes decision-making to AI systems.
Crisis Equals Opportunity – When There's Blood, Buy Real Estate
The phrase "buy when there's blood in the streets" captures the essence of finding opportunity in times of crisis. Historically, periods of fear and chaos have created openings for those who dare to invest in undervalued assets. Examples include:
2008 Financial Crisis: The collapse of Lehman Brothers sent markets into free fall, but those who invested in the aftermath saw massive returns.
2020 The COVID-19 market crash: The onset of the global pandemic led to widespread panic, causing the S&P 500 to plummet over 30% in just weeks. However, those who invested during the lows of the crisis, particularly in tech stocks like Amazon, Microsoft, and Zoom, or broad index funds like the S&P 500 ETF, saw extraordinary returns as markets rebounded rapidly, driven by fiscal stimulus and the adoption of remote work and digital solutions.
The insurance sector’s recent 7.75% decline could represent a similar opportunity. Despite the challenges it faces—including public mistrust and the integration of AI—the sector remains a pillar of the economy, offering stability and long-term value. Investors willing to look beyond the current headlines may find opportunities in undervalued stocks or ETFs.
The blue line above represents the iShares U.S. Insurance ETF, which has delivered an impressive 29.94% year-to-date performance. Just two weeks ago, it peaked at a remarkable 37.72% YTD, showcasing notable growth despite holding a low beta of 0.63. In comparison, the S&P 500 index (pink line) trails slightly at 26.86% YTD, highlighting the ETF's strong performance amid broader market trends.
The Bigger Picture – Rethinking Our Relationship with AI
As artificial intelligence continues to shape industries, including insurance, we must ask ourselves whether we are too willing to accept the "probable" at the expense of the possible. By relying on AI to make decisions en masse rather than on a case-by-case basis, we risk losing the creativity, empathy, and adaptability that define human ingenuity.
This trend reflects a broader societal shift: the preference for convenience over effort, and for efficiency over quality. Building a chair by hand is challenging, but it produces something unique and meaningful. Similarly, making decisions based on human judgment rather than algorithms may be harder, but it can lead to richer, more fulfilling outcomes.
The question is not whether AI is good or bad—it’s whether we are consciously choosing how to integrate it into our lives, or passively allowing it to dictate our future.
The recent events in the insurance sector remind us of the dual nature of a crisis: it is both a moment of danger and an opportunity for growth. As investors, we should recognize the potential for recovery and act accordingly.
This week, we’ll turn our attention to the Fed’s final meeting of the year on December 18th. The decision on interest rates will likely play a pivotal role in shaping market sentiment as we head into 2025. A pause or dovish pivot could ignite a positive market reaction, while a more hawkish stance might heighten volatility. Investors would be wise to stay vigilant and assess how the outcome aligns with their portfolio strategy.
But beyond markets, this moment also challenges us to reflect on our growing reliance on AI. Are we embracing tools like artificial intelligence thoughtfully, or are we succumbing to "Cognitive indifference"?
In a world increasingly driven by probabilities, let’s not forget the power of human creativity, empathy, and resilience. Whether investing in stocks or shaping the future of decision-making, the key is to remain actively engaged and intentional in our choices.
When planning your next investment move, remember: markets recover, but the values behind your choices shape your legacy. Whether you're navigating financial uncertainty or exploring the evolving role of AI, act with intention. The opportunities ahead aren't just about financial gains—they're about building a more secure future. At BMG, we're here to guide you every step of the way.
