Financial Crisis Top Risk

The financial crisis is the greatest business risk facing the insurance sector in 2009, according to the second annual business risk report from Ernst & Young and Oxford Analytica. It suggests that the consequences of economic events, financial shocks and their aftermath have been so profound that they are likely to shape the industry for the next 10 years. Major forms of change involve products, regulation, investment strategies and capital requirements. Model risk ranked as the second greatest business risk facing insurers. According to the study, the failure to recognize the shortcomings of models and to adequately capture the nature of underlying risks has left some insurance companies unprepared for the depth of recent financial events. Regulatory intervention ranked as the third top risk for insurance. While the full extent of regulatory change is unknown, early signs are that revisions to insurance sector regulation have the potential to be dramatic. Insurance companies need to recognize the broader implications and prepare for the sweeping changes that lie ahead. Check out Insurance Journal’s June 23 online article for more on the study findings.

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