Risk Management and the Global Banking Crisis: Lessons for Insurance Solvency Regulation by Simon Ashby
This journal article by Simon Ashby investigates the causes of the global banking crisis and the numerous lessons that needed to be learned from it to ensure future insurance regulation. In the paper, the author argues that the banking crisis was due to weak management policies and regulation of banks leading to problems such as poor risk management communication, over reliance on statistical risk models, and flawed compensation schemes. Due to these issues, there have been doubts expressed about the sustainability of insurance regulatory reforms. It is also recommended that more balanced insurance regulations should be implemented such that there is greater emphasis on enhancement of risk management guidance, supervisory utilities, and improvement of disclosure controls (Ashby, 2011).
According to Ashby, regulation of insurance companies is at a “global crossroads” given that many countries are still reforming their policies in compliance with the National Association of Insurance Commissioners ‘Solvency Modernization Initiative’ and the Joint Forum of international financial services supervisors’ calls for closer harmonization of solvency management across the insurance and banking sectors. The global banking crisis revolutionized the insurance policy reforms, and insurers were keen to analyze the ramifications to improve the efficacy of their solvency plans. In the study carried out by the author, data is analyzed from interviews conducted with 20 senior risk management professionals in the aftermath of the financial crisis of July to August 2009. These testimonies provide firsthand accounts of the financial crisis and its causes and implications for insurance solvency regulations. They are also used as a basis for providing recommendations to the financial crisis and insurance reforms (Ashby, 2011).
In summary, the paper argues that the global banking crisis was caused by cultural weaknesses in the finance industry, communication deficiencies in some financial institutions and weaknesses in banks, investment firms and building societies characterized by flawed compensations. These factors had various implications for insurance solvency regulation and initiated various strategies including paying more attention to the risk management and insurance firms supervision, and controlling risks using management guidance and supervisory tools coupled with better disclosure policies.
Reference
Ashby, S. (2011). Risk Management and the Global Banking Crisis: Lessons for Insurance Solvency Regulation. The Geneva Papers On Risk And Insurance Issues And Practice, 36(3), 330-347. http://dx.doi.org/10.1057/gpp.2011.10
