Terrorism and interest rate risk are among the biggest risks that insurers face, according to leading life insurance CEOs.
Because risks are potentially “bigger and more frequent,” a new approach to risk is needed, these executives told attendees at the Global Financial Leadership Forum, whose theme was “Managing Risk in a Risky World.” The forum is organized by the American Council of Life Insurers, Washington, in partnership with EDS, Plano, Texas.
A “perfect storm” of realized risk including 9/11, a caving of the equity markets in July 2002, credit losses, litigation from issues including asbestos, a severe hurricane season and the possibility of a flu pandemic is causing The Hartford Financial Services Group, Hartford, Conn., to view risk in terms of enterprise risk management rather than in terms of individual risk ‘silos,’ said Ramani Ayer, chairman and CEO.
Enterprise risk management looks at the cross-correlation of risk, he continued. Because these “risks are getting bigger and more significant,” they resulted in a review of how risk should be considered, he added.
Terrorism is a real exposure, Ayer explained, because the extent of the potential damage it could cause is magnified by the size of the event. It is estimated that 9/11 caused $7 in economic benefit loss for every dollar of actual loss, he said, and it is estimated that a dirty bomb could cause $97 billion in economic loss and a nuclear plant terrorist attack, $160 billion.
For this reason, the extension of the Terrorism Risk Insurance Act is important, he noted. “The insurance industry simply cannot absorb the events that are contemplated today,” he added. “And, my deepest concern is that group life might not be included.”
He said the sense he got when he visited Washington recently was that there was not a strong will to include group life in TRIA. He urged life companies to take the issue seriously.
Sy Sternberg, chairman and CEO of New York Life Insurance Company, said a rapid jump in interest rates is the risk his company is most concerned about.