Financial Crisis Poses Greatest Threat to Insurance Industry, Study Says

The impact of the financial crisis is the most significant risk facing the insurance industry, according to a new report by Ernst & Young. In its second annual business risk report – insurance 2009, model risk and regulatory intervention rank second and third among the top 10 risks.

“As a result of the current economic conditions, there have been significant changes in the risks since the release of our 2008 report,” said Peter R. Porrino, global director of insurance in the company’s Global Insurance Center. “As insurance companies continue to navigate their way through this downturn, they should be focusing on changing their approach to risk management, regulatory analysis and the communication of risk information.”

The report identifies the top 10 business risks faced by the industry as ranked by more than 100 sector analysts. The top 10 risks this year are:

While much of the downside risk may have already occurred, the current market turbulence still poses an immediate threat, the study indicated. “In this environment, it is essential that insurance companies address product innovation, changing regulation, investment strategies and capital requirements to help retain earning power and maintain agency ratings. This will help to serve as a starting point for discussions among leadership so that their near- and long-term business strategies take these issues into account,” Porrino said. “While instability still prevails, opportunities abound for those companies that are able to rebuild and strengthen their businesses.”

Source: Ernst & Young