Fragmented risk management approaches are no longer viable. Threats are too systemic and pervasive to be effectively managed from silos. The world has learned an enduring lesson from the crisis of 2008: a convergence of threats, perceived or otherwise, can impair an entire industry or even economy.
In past years, the insurance industry could turn to a number of capital sources in a post-catastrophe year and restore balance sheets. In 2009, this tactic is unlikely to be effective, as the supply of capital has dwindled and the cost has increased. Instead of merely reloading on capital, the insurance industry will have to focus on making better use of the capital they have.
The key to making the most of the capital that carriers have on hand will be the adoption of an enterprise-wide understanding of risk, as well as the tools to manage capital based on the full spectrum of risks. Enterprise Risk Management (ERM), once considered an opportunity to sustain a competitive advantage, is likely to become part of the price of admission to the insurance space.
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