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Insurers, others must become more resilient to economic, political threats

Insurers, others must become more resilient to economic, political threats

Economic and political headwinds are mounting in 2019, and businesses and insurers need to ramp up their resilience to these threats, experts say.

In the United States, political uncertainties created by a divided Congress and the federal shutdown may influence several important issues for property/casualty insurers, said John Huff, president and CEO, Hamilton, Bermuda-based Association of Bermuda Insurers and Reinsurers.

“If you think about the National Flood Insurance Program and flood insurance reform, this is a critical stage as we go through whether there may be some opportunities to shift some of this taxpayer risk to the private market,” Mr. Huff said during a panel discussion at the Joint Industry Forum hosted by the Insurance Information Institute in New York on Thursday.

Another important concern is the upcoming renewal of the federal government’s terrorism insurance backstop initially created by the Terrorism Risk and Insurance Act of 2002, better known as TRIA.

A divided government may have implications “as we go through TRIA renewal at the end of next year and what it might mean for the private sector to take on more of that risk,” Mr. Huff said.

Earthquake risk is another area of business that could be affected by divided government. As earthquake events appear to be escalating, this is a timely issue in terms of where the risk sits today, particularly in the mortgage market, Mr. Huff said. Crop insurance could also see an impact because of implementation of the Farm Bill, he said.

Against this volatile political backdrop, insurers need to maintain their ability to foster resilience in society, according to speakers at the JIF forum.

At the Fed, it was a mistake to think of about resilience and the financial sector in terms of “trying to predict what can happen and respond to a predictive event because you won’t really know what is going to happen,” said Randal Quarles, vice chairman for supervision and member of the Board of Governors of the U.S. Federal Reserve System based in Washington D.C.

“Catastrophes have been rising and the important thing to ensure is that you have measures whether with respect to a company or industry or the financial sector as a whole that promote resiliency no matter what might happen, and ensure wherever the shock might come from that the institution or the system is resilient to that shock,” Mr. Quarles said.

Cyber is the most immediate risk that regulators and the financial sector need to be on top of, Mr. Quarles said. “At the Fed we think a lot about cyber risk, where the vulnerabilities are and where the threats may come from.”

While the focus is on how to prevent cyberattacks, resilience is a key element in mitigating the risk, Mr. Quarles said. “Assume something will happen. How have you constructed a system that can stand back up, respond and be resilient to that?” he said.

“Cyber is the biggest risk we face and we have more work to do to get on top of it,” he added.

A report released by the World Economic Forum last week also found that the top global risks are influenced by geopolitical and geo-economic tensions. 

The report, which is based on a survey of about 1,000 risk experts, found that continuing domestic political strains frequently exacerbate rising geopolitical instabilities around the world.

Respondents to the survey ranked “increasing polarization of societies” second only to climate change as an underlying driver of developments in the global risks landscape.

The top geopolitical risk right now is in the White House, said David Wessel, director, The Hutchins Center on Fiscal and Monetary Policy and senior fellow with the Washington, D.C.-based Brookings Institution.

“I don’t think people in Washington have confidence this administration could handle a crisis as well as the Obama or Bush White House,” Mr. Wessel said during the forum.

“Independent of what industry you are in, there needs to be a more prominent voice on tensions in society,” Mr. Wessel said. “This is an opportunity for industry. There’s a yearning for leadership,” he added.




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