Although enterprise risk management (ERM), has evolved rapidly over the past decade, the Covid-19 pandemic has served to emphasise that (re)insurers still can be affected by “unknown unknowns” and “unexpected accumulations”, according to a new AM Best Report.
Reinsurance, and to some extent, insurance, has thrived on globalisation with limited barriers to entry. With this has come an increasing interconnectivity of risks between markets and participants, and the consequences of a higher risk of contagion between insurance and other sectors.
As these risks have become intertwined in increasingly complex relationships, insurers cannot expect to be immune to economic slumps and supply chain disruptions, said the report.
“Conventional wisdom had led most observers to expect that the greatest impact of a pandemic would be to the life and health sector, but in reality, it is likely that property/casualty insurers and reinsurers will feel the brunt of the impact to this event. In turn, Covid-19 is testing insurers’ ERM approach, practices and resilience to current market conditions,” said AM Best criteria senior director Mahesh Mistry.
The report said that while the insurance industry is well-capitalised, the impact from the pandemic will affect insurers’ balance sheet and operating performance to varying degrees.
However, AM Best believes lessons learnt from the past and by this pandemic should equip companies to understand their exposures better and adopt even more robust risk practices in the near future.