Despite the importance of insurance in enabling individual and collective social, economic, and financial activities, discussions about the macroeconomic role and the risks of insurance markets have been surprisingly limited, a London Business School expert points out.
In a new book, The Economics, Regulation and Systemic Risk of Insurance Markets, launched this week, Ralph Koijen, Professor of Finance at London Business School has collaborated with a number of academics, policymakers and industry leaders to provide a body of research and perspectives to enhance understanding of the insurance sector.
Professor Koijen says: “The insurance sector directly employs around 4 million people and the aggregate balance sheet size is around $25 (£22) trillion in terms of assets, which is about half of the total GDP of the OECD. Given the long-term nature of insurance, insurance companies are an important group of long-term investors in global financial markets. In The Economics, Regulation and Systemic Risk of Insurance Markets, we start to explore the risks facing the insurance market and the effects this could have on the global economy in general.”
“While insurance is part of the broader financial sector, the differences with other parts of the sector, and in particular banks, have been emphasised only recently,” said Koijen.
Insurance has gained renewed attention from public and financial authorities since 2008 with the failure of AIG, the stress during the financial crisis in the insurance sector more broadly, and the subsequent low interest rate environment.
As new regulatory frameworks and qualifications are nascent, many conceptual and empirical questions on the nature and intensity of systemic risk in the insurance sector remain open.
“Our core motivation for publishing this book is to bring together academics, regulators, and industry experts to provide a multifaceted array of research and perspectives on insurance, its role and functioning, and the potential systemic risk it could create. While these debates develop slowly and under public scrutiny, we hope the book stimulates further research and debate to address the key questions and challenges faced by the insurance sector going forward,” says Koijen.
More from Ralph Koijen on shadow insurance as a key area of risk.