Risk Management Focus Has Flipped Since Bubble Burst
Nicholas Michellod | May 12, 2015
The insurance industry has faced difficult times following the collapse of the subprime bubble back in 2008. Some big names have been particularly hit by the financial crisis and many observers wondered whether insurers were running efficient risk management principles.
Over the past decades insurers have identified key challenges to be addressed including:
- The need to go beyond pure insurance risk management. Insurers like many other industries have neglected specific risks that are more difficult to evaluate such as operational risks. However new regulations prepared by insurance associations including for instance the Solvency II regulation in Europe take into consideration all risks part of an insurer’s balance sheet.
- The necessity to continuously assess the external environment. Exogenous factors such as low interest rates have gained more importance nowadays and insurers have understood they need to periodically run economic scenario simulations in order to anticipate consequences of such factors on their business.
- The importance to diversify notably through product innovation. Even though insurers are known to be conservative and reluctant to change, many understand that diversification of their product portfolio and product innovation can help them mitigate risks. This is the reason why we see an increasing amount of insurers investing in emerging technologies such as predictive analytics, telematics, the Internet of Things, etc.
Overall insurance companies are on the right track and we believe the industry has gained strong expertise in managing risks over the past few decades.
Nicolas Michellod is a senior analyst with Celent’s Insurance practice. His research is focused on continental European insurance markets with a specific focus on France and insurance systems including life policy administration, document automation and risk management systems.
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