Risk Management by Insurers: An Analysis of the Process
WFIC Working Paper 96-16
Posted: 12 Jun 1998
Date Written: Undated
Through the past year, on-site visits to financial service firms were conducted by a team of researchers from the Wharton Financial Institutions Center to review and evaluate their risk management systems. In the insurance sector, this evaluation covered a number of prominent life/health and property/casualty insurers, both in the U.S. and abroad. The information obtained on the philosophy and practice of financial risk management comes primarily through intensive interviews and analysis of the reports and procedures that are in place at these insurance firms. The purpose of this paper is to outline the results of this investigation. It reports the state of risk management techniques in the industry, questions asked, questions answered and questions left unaddressed by respondents. It reports the standard of practice and evaluates how and why it is conducted in the particular way chosen. But, even the best practice employed within the industry is not good enough in some areas. Accordingly, critiques are offered where appropriate. The paper concludes with a list of questions that are currently unanswered, or answered rather unsatisfactorily in the current practice employed by this group of relatively sophisticated insurers. Here, we discuss the problems which the industry finds most difficult to address, shortcomings of the current methodology used to analyze risk, and the elements that are missing in the current procedures of risk management.
JEL Classification: G22, H51, H70
Suggested Citation: Suggested Citation