I.I.I. Paper Examines Property/Casualty Insurance Industry and Systemic Risk

Reporters covering the U.S. House of Representatives’ hearing on Thursday on Congressional ‘Oversight of the Financial Stability Oversight Council (FSOC)’ can review an Insurance Information Institute (I.I.I.) white paper on the property/casualty insurance industry and systemic risk.
 
Co-authored by Dr. Robert Hartwig, president of the I.I.I. and an economist, and Dr. Steven Weisbart, senior vice president and chief economist for the I.I.I., the paper, Property/Casualty Insurance and Systemic Risk, offers a six-page overview of how the risk management practices at U.S. auto, home and business insurers are superior to those that were in place at most banking institutions throughout the 2008-2009 economic downturn. As a result, the P/C insurance industry as a whole poses no systemic risk to the world’s financial system.
 
“While no one disputes the need for better oversight of lightly or unregulated firms that can shake the foundations of our financial system, the FSOC must employ sound economic principles in the identification of systemically important firms,” Dr. Hartwig stated. “At least when it comes to the property/casualty insurance industry, the companies that sell auto, home and business insurance, the FSOC may mistakenly believe that size and size alone is a sufficient criterion for identifying systemic importance. Yet irrespective of size, it is difficult to see how companies that sell protection against losses arising from such things as auto accidents, kitchen fires and lawsuits from slip and fall accidents could ever be construed as systemically risky.”
 
The U.S. House’s subcommittee on Oversight and Investigations convened in Washington, D.C., Thursday at 10 a.m., ET, to discuss oversight of the FSOC, which is housed within the U.S. Treasury Department. Established under the Dodd-Frank Act of 2010, the FSOC is charged with identifying threats to the financial stability of the United States; promoting market discipline; and responding to emerging risks in the U.S. financial system.