Page 50 - The Insurance Times October 2025

Case Study

Building a Risk-Aware Culture at AIG Post-2008

Crisis

What is Risk Culture? Global frameworks like Solvency II, IFRS 17, and IRDAI's
Risk-Based Supervision (RBS) all emphasize risk culture
Risk culture refers to the norms, attitudes, and behaviors
as a prerequisite for sound governance.
of individuals and groups within an organization that deter-
mine how they identify, understand, discuss, and act on
4. Crisis Prevention
current and future risks. It is essentially "how people think
about risk and how they behave in relation to risk". Many insurance failures (AIG 2008, Equitable Life UK
2000, etc.) stemmed not from lack of models but from
In an insurance company, risk culture defines: poor governance and risk culture, where warning signs
were ignored.
How underwriters assess and price policies,
How claims teams evaluate fairness,
5. Competitive Advantage
How investment managers balance returns with pru- Insurers with strong risk cultures can price products
dence, and better, respond faster to emerging risks (cyber, climate,

How management responds to red flags or early warn- pandemics), and maintain superior credit ratings.
ing signals.
Background

A strong risk culture encourages transparency, accountabil- The 2008 global financial crisis exposed deep flaws in gov-
ity, and proactive action, while a weak one fosters short- ernance and risk culture across financial institutions, includ-
term gains, complacency, and potential systemic crises. ing insurers. American International Group (AIG), once the
world's largest insurer, required a U.S. government bailout
Importance of Risk Culture in the Insur- of over $180 billion to survive. The crisis was not just about
poor investment decisions-it revealed a weak risk culture,
ance Industry
where aggressive sales incentives, lack of enterprise-wide
1. Foundation of Trust risk oversight, and fragmented accountability led to cata-
Insurance is built on trust-policyholders rely on insurers strophic losses.
to honor promises decades into the future. A sound risk
culture ensures that promises are not undermined by The case of AIG became a turning point for the insurance
reckless practices. industry, sparking regulatory reforms and internal restruc-
turing globally. This case study focuses on how AIG-and by
2. Long-Term Sustainability extension, the industry-rebuilt its risk management culture
Unlike other industries, insurers deal with long-tail risks and what lessons it holds for insurers worldwide.
(life, liability, catastrophe). Poor risk management to-
day can jeopardize solvency years later. The Problem: Weak Risk Culture
1. Siloed Operations - Business divisions worked in isola-
3. Regulatory Compliance tion, with little coordination on risk exposures.

46 October 2025 The Insurance Times