Enterprise risk management is as much applicable to insurers as to the insured. The insurance industry, with little financial disclosures from the insurers, and its over-regulation by the IRDA, is not all that rosy as consumers want it to be. Getting non-customers of insurance into the insurance fold is the biggest challenge to both. Creating demand rather than stimulating supply is not the right strategy and may be harmful to the insurance system.

"The share prices of European insurers have dropped by almost a quarter this year and (they now) trade on the lowest multiple of earnings of any sector battered, banks included. Is that fair?", queries the Economist on July 26, 2008. This statement should startle any one connected with the insurance industry. One thought it was the banking industry that had the contagion, and that it was an epidemic largely restricted to them. When the Economist points out that insurers are more affected than most—it requires a larger notice from the rest of the world.

The share prices and the profit-taking levels of most prominent world reinsurers, including the Swiss Re, the Munich Re, AIG and several others are significantly down, despite a benign catastrophic season with moderate loss scenario. What happened to them?

Life insurers were battered earlier; post WTC scenario and the burst of the dot-com bubble, when share prices suddenly collapsed around the world. Insurers had then invested heavily in the equity market and had to take in the diminution in share prices to record losses. It is now reported that they had dropped their equity holdings, since then, to 10% of invested funds; and had gone after acquiring government-backed securities. But this has not helped them this time around, as they have provided insurance covers on credit derivatives and had also bought substantial credit derivative related assets to earn their incomes. The write-downs are huge, the claims are large—not to talk of D&O covers and their claims that are yet to crystallize.

Role of Risk Management in Insurance, Enterprise risk management, Insurance industry, European insurers, Insurance system, Banking industry, Economist points, Deposit Insurance and Credit Guarantee Corporation, DICGC, Risk management data.