Policy Issues In Insurance The Impact Of The Financial Crisis On The Insurance Sector And Policy Responses PDF Download

Many people believed that insurance is regarded a shock absorber of the economy, then it might not be the sector that was affected by the current financial crisis. However, the collapse of America International Group (AIG) in 2008 has ignited a question of the link between the financial crisis and insurance industry. Although, there were several studies and papers of International Monetary Fund or Geneva Association of Insurance, etc' which discussed about the possible impacts of the financial crisis, rarely there had studies referring to the different roles of insurance in the economy. This thesis aimed to discover the impacts of the financial crisis on insurance sector regarding its various roles. Insurer play two roles in the economy: one as the financial player where it makes profit from the earned premium in the financial market and the other as its normal activity, insurance, which is related to the general economic stage. So the insurance industry had to suffer during the period of crisis in both two ways. In spite of the limited data, this report believes to give the readers an overview of insurers' condition through the period of financial crisis after outlining the major impacts and studying the several specific cases. The impacts from financial markets were due to the collapse of the securities market and the loss on subprime mortgage. In general economic stage, insurance companies felt the heat of the crisis through the shrinkage of demand in insurance products and the rise of insurance fraud. Moreover, it showed that the consequences heavily depended on the connection between the insurers with the financial world and the development of the market where insurance companies operate. That is why Vietnam represents the special case which still enjoys the growth rate of 20-30% per year. In addition, life insurance was affected much more than non-life insurance because of its extensive investment portfolio. By studying three famous case studies (AIG, ING Group and Bao Viet Holdings), the thesis strengthens the points which were made in the theoretical part. It is important to notice that not all of the mentioned symptoms happened to every insurance company. The impacts on insurance sector depended on the link between the company and financial market, the development level of the industry, the company's investment portfolio and the operation's areas. The company could be hit by its financial activities like AIG or by the regions it operated like ING Insurance or by the general economic recession like Bao Viet Holdings. The slash of AIG's stock and the sharp decline of financial activities proved that financial department was the reason for all the mess of ING. Meanwhile, ING Insurance's loss was resulted from its activities in the US, the origin of the financial crisis, following was Europe. Finally, Bao Viet Holdings was the typically insurance company which only had insurance activities in one developing country, Vietnam, an immature insurance market. It still enjoyed the development of 10% in life insurance and 20% in non-life insurance. The real reason for this surprising fact was the lack of relationship between insurance sector and financial market and the underdeveloped insurance environment containing of only traditional products.