Managing risk in turbulent times

In a speech to the Institute of Economic Affairs recently, insurance sector leader at the FSA Sarah Wilson set out her view of the risks facing the industry in an economic downturn. In this extract, Ms Wilson identifies potential pressures on firms and the FSA’s expectations of firms in this new climate

In an economic downturn, where there is uncertainty, where unemployment may rise and where people may struggle to meet their costs of living, firms are likely to experience higher claims volumes. The firms most affected are likely to be those offering products that protect against unemployment or sickness, including employers’ liability insurance. Based on past experience, we also know that firms offering household cover may also experience increased theft, arson and fraudulent claims. Arguably the impact of claims inflation on firms’ financial position is unlikely to be material, nevertheless it is important that firms consider the extent to which this trend should affect their underwriting strategy. It is also important that firms take this into account before taking decisions on end of year reserve releases.