Insurance, Systemic Risk and the Financial Crisis

Faisal Baluch, Stanley Mutenga and Chris Parsons
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Faisal Baluch: Commerzbank, 60 Grace Church Street, London EC3V OHR, U.K.
Stanley Mutenga: Sir John Cass Business School, 106 Bunhill Row, London, EC1Y 8TZ, U.K.
Chris Parsons: Sir John Cass Business School, 106 Bunhill Row, London, EC1Y 8TZ, U.K.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2011, vol. 36, issue 1, 126-163

Abstract: In this paper we assess the impact of the financial crisis on insurance markets and the role of the insurance industry in the crisis itself. We examine some previous “insurance crises” and consider the effect of the crisis on insurance risk—the liabilities arising from contracts that insurers underwrite. We then analyse the effects of the crisis on the performance of insurers in different markets and assess the extent of systemic risk in insurance. We conclude that, while systemic risk remains lower in insurance than in the banking sector, it is not negligible and has grown in recent years, partly as a consequence of insurers’ increasing links with banks and their recent focus on non-(traditional) insurance activities, including structured finance. We conclude by considering the structural changes in the insurance industry that are likely to result from the crisis, including possible effects on “bancassurance” activity, and offer some thoughts on changes in the regulation of insurance markets that might ensue.

Date: 2011
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