Managing Systemic Risk in the (Re)insurance Market

...to affect either many different lines of business across diverse geographies at once, or impact a single line of business profoundly.

COVID-19 neatly illustrated the ability of a single peril or risk to simultaneously impact numerous lines of insurance business across the globe. Governmental reforms that were implemented post the Great Financial Crash in 2007/2008, “proved successful in preventing the failure of large financial firms that would otherwise result in ‘bailouts’… but [were] unsuccessful in creating a more resilient financial system that could withstand sudden shocks without resorting to large-scale government intervention to maintain stability at the first signs of panic.”[1]

While the (re)insurance industry proved resilient throughout the pandemic, with COVID-19 losses largely managed within the industry’s expected earnings tolerance, the limitations on coverage provided were not well understood in advance and did not support as meaningful a response to the substantial loss that occurred as many desired. As a result, the (re)insurance industry has not provided broad economic backing. Instead, governments had to step in to provide financial support to safeguard society, their citizens and their economies.

Read the entire article by Charles Whitmore under Download.