Insurers weather 2008-09 financial crisis partly because of lessons learned in 2002

Property and casualty insurers fared better than their banking counterparts during the 2008-09 financial crisis partly because the insurance industry learned its lessons from the soft market crisis in 1999-2002, the chairman of Ironshore Inc. said in an Oct. 15 speech in Toronto.
Ron Sandler observed that after 2002, improved risk management became a focus and weaker performers exited the insurance market. “As someone once came up to me and told me: ‘There were no longer any village idiots out there.'”
Sandler said a post-2002 market restructuring resulted in better analysis of risk overall, including better product management, capital management, efficiency-to-capital management, enterprise risk management systems and improved underwriting discipline.
The industry also benefited from much better information and the improved skills of CEOs in the industry, Sandler said, concluding the industry was much more financially astute as a result.
That’s why the insurance industry, as opposed to the banking industry, escaped the 2008-09 financial crisis “largely unscathed,” Sandler said.
Also, all aspects of the industry’s structural changes noted above led to a reduced degree of market cyclicality.
“There are still soft markets,” Sandler said. “But we’re not seeing a repeat of the serious soft pricing [that characterized the period between 1999 and 2002].
“Yes, there will be soft and hard markets, but I don’t think you will see the extreme volatility that you used to see.”