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Failure Risks in the Insurance Industry: A Quantitative Systems Analysis

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  • Elisabeth Paté‐Cornell
  • Léa A. Deleris

Abstract

We present in this article the findings from a study on insolvency in the property–casualty insurance industry that was commissioned by the Risk Foundation. The Risk Foundation contacted us for this work to draw from our experience in risk analysis based on systems analysis and probability. Therefore, we provide a different perspective on failure in the insurance industry by opening the “black box” to assess the contribution of different factors to the overall risk. Besides the development of a quantitative model for insolvency risk, our study for the Risk Foundation included insights from (1) unstructured interviews with 15 insurance industry experts and with six insurance regulators in different states, and (2) a statistical analysis of insolvency data (A.M. Best) covering the 1970 through 2005 period. Our focus here is centered on the practical insights that came out of the study, rather than on the technical details that led us to those insights.

Suggested Citation

  • Elisabeth Paté‐Cornell & Léa A. Deleris, 2009. "Failure Risks in the Insurance Industry: A Quantitative Systems Analysis," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 12(2), pages 199-212, September.
    • Handle: RePEc:bla:rmgtin:v:12:y:2009:i:2:p:199-212
    DOI: j.1540-6296.2009.01162.x
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    References listed on IDEAS

    as
    1. Stephen P. D'Arcy & Richard W. Gorvett, 2004. "The Use of Dynamic Financial Analysis to Determine Whether an Optimal Growth Rate Exists for a Property‐Liability Insurer," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(4), pages 583-615, December.
    2. Dickson, D.C.M. & Waters, H.R., 1996. "Ruin Problems: Simulation or Calculation?," British Actuarial Journal, Cambridge University Press, vol. 2(3), pages 727-740, August.
    3. Dickson,David C. M., 2005. "Insurance Risk and Ruin," Cambridge Books, Cambridge University Press, number 9780521846400.
    4. Martin Eling & Thomas Parnitzke, 2007. "Dynamic Financial Analysis: Classification, Conception, and Implementation," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 10(1), pages 33-50, March.
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