
The use of insurance policies to mitigate operational risk 231
securities may be rated below A (see Chapter 12). As a Basel Committee document has
suggested, ‘Banks that use insurance should recognize that they might, in fact, be
replacing with operational risk counterparty risk.’ There are also questions relating
to:
䊏 Liquidity
䊏 Loss adjustment
䊏 Voidability
䊏 Moral hazards
䊏 Limits in product range, and
䊏 Inclusion of insurance pay-outs in internal loss data.
Another challenge is payment lag, that is to say, the time it takes for an insurance
company to pay damages associated to credit risk or operational risk. This is the
regulators’ largest reserve ...