Reflections from the Risk Management Lens
Dr Abhijit K. Chattoraj, Chartered Insurer
From time immemorial, human life and property have been threatened by numerous common hazards, like fire, floods, property damage, accidents, and theft. Risk has been an inherent part of human existence from the very beginning.
Remember the conversation in the famous Shakespearean play ‘The Merchant of Venice ( Act 1; Scene 1) between Antonio, Salerio and Solanio written around 1596 980 i.e. 16th century.
Shakespeare captures this visible anxiety with rare sophistication in the above conversation. Antonio’s downheartedness is not born of the present moment but of the seas beyond his sight—his argosies sailing smugly yet perilously, laden with fortune and fate alike. As Salerio and Solanio observe, Antoni’s heart trips with his ships; every shifting wind carries the possibility of adversity. In a few lines, Shakespeare demonstrates the essence of risk: wealth precariously linked to uncertainty, hope mired in peril. It is also true that long before the advent of modern finance, merchants devised ways to live with uncertainty rather than surrender to it.
Bottomry was used in ancient times by merchants who wanted to finance their sea voyages. The Rhodian Sea Law, which dates back to approximately 800 BC, was the first to codify the Bottomry bonds. It is named after the Latin word “bustum,” which means “ship. It was later adopted in Roman Law as faenus nauticum (maritime loan -) as a risk-sharing principle.
Nauticum foenus, meaning “nautical interest,” refers to an astonishing interest rate applied to loans for financing maritime ventures, particularly hazardous. Such loans are repaid only if the voyage is successful. Another term used for this concept is “usura maritima.” It refers to the interest charged on high-risk maritime loans – the interest rate is proportionate to the voyage’s weighty perils and the inherent risk. These loans were advanced to shipowners contingent upon the successful completion of a voyage.
Bottomry is a maritime loan that finances a ship while it is at sea. It is a legal contract between the shipowner and the lender in which the vessel is used as security to finance voyage-related expenses, such as repairs, cargo, and crew wages, with refund of the loan and the high interest due only if the ship safely completes the voyage.
Respondentia, on the other hand, is a type of loan taken against the cargo carried on a ship. In simple terms, the cargo owner uses the goods as collateral to secure a loan for the voyage. If the voyage is completed safely, the owner repays the loan with interest. However, if the cargo is lost or damaged during the voyage, the lender can recover the loan amount, including interest, from the cargo.
The interest payable both in bottomry and respondentia constitutes a premium for the risk of total loss.
Risk and its management are as old as human misery and enterprise. However, the tenor and gamut of both risk and risk management have changed dramatically over the period.
Insurance, as a risk-mitigating tool in some accounts, dates back to the 4th century BC during the reign of Chandragupta Maurya. There are references to similar practices in the writings of Kautilya (Arthashastra) and Manu (Manu Smriti)
कर्मण्येवाधिकारस्ते मा फलेषु कदाचन ।
मा कर्मफलहेतुर्भूर्मा ते सङ्गोऽस्त्वकर्मणि ॥
Karmaṇy evādhikāras te mā phaleṣu kadācana
Mā karma-phala-hetur bhūr mā te saṅgo’stvakarmaṇi
These lines from the Bhagavad Gita capture the essence of risk management.
The lines explain, ‘You have a right to perform your prescribed duty, but you are not entitled to the fruits of your action. Never consider yourself the cause of the results of your activities, and never be attached to not doing your duty’.
If you delve deeper and try to dig into risk management insights, you realise that Lord Krishna advised Arjuna to focus on the process, not the outcome. Arjuna was advised to fight as a matter of duty without attachment to the results. Any attachment, positive or negative, is cause for enslavement. Therefore, inaction is evil. Hence, fighting as a matter of duty was the only propitious path to redemption for Arjuna. Look how beautifully Lord Krishna explained risk aversion leading to inaction to Arjuna. ( Source Bhagavad –Gita As It Is)
A myriad of risks beyond these pronounced hazards can cause strategic, financial, and operational damage. Risk management in the yore was more about preventing or minimising property damage and injuries. However, an all-inclusive, holistic approach is needed to manage risk today, which is far broader and more complex.
Every crisis appears sudden in hindsight, but few are truly unanticipated. Risk management is not about predicting the future—it is about recognising vulnerability before it proclaims itself. Risk Management is much more than mere compliance with rules. It needs to look beyond rule–based risk management and galvanise itself toward judgment, foresight, and resilience.
Risque in French means risk. If we go to the root of the word, it has a similarity to the Italian word Rischio/Risco, meaning danger or exposure to destruction. The Latin Risicum also means uncertain. It became “risk ” in English from the French “risque “.Conceptually, Risque/Risk goes beyond mere exposure to danger. At its core, risk is not bravado or indecency, as it is often erroneously used in English; rather, it reflects a cautious approach to uncertainty.
