This chapter addresses the structure and risks of the insurance industry. Many banks offer insurance products alongside banking products, or own insurance companies as subsidiaries. As a result, the risks associated with the insurance industry can be a significant component of a bank's overall risk profile. This chapter begins by describing the typical business model of insurance companies—which is quite different from the business model of a bank—and then examines the two principal types of insurance: property and casualty (P&C) and life insurance.
- 9.1 Introduction to the Insurance Industry
- 9.2 Property and Casualty Insurance
- 9.3 Life Insurance
- 9.4 Reinsurance
- 9.5 Other Types of Risk
- 9.6 Regulation and Supervision—Solvency 2 in the European Union
- 9.7 The Role of Lloyd's of London
- 9.8 Summary
Key Learning Points
- Insurance is a contract between an insurer and a policyholder, whereby the insurer agrees to pay a sum of money to the policyholder if a specified event happens within a specified period of time.
- Insurance works on the principle of sharing the losses of a few people through small contributions made by a large number of people.
- There are two main types of insurance: property and casualty (P&C) and life insurance (“life and pensions”).
- The main inherent risks of property and casualty insurance are underwriting risk, reserving risk, and claims management risk.
- The main inherent risks of life and pensions are longevity risk, ...