Page 152 - Risk Management in current scenario

Such events can also lead to large number of claims from one geographic
area where Group policy is in place. This may resulting into very large
number of claims seriously impacting financial health of the organization
given that there have been increased regulatory reinsurance retention
limit. Such claim may even breach the catastrophe reinsurance limits of
insurers sneaking into solvency breach.

For such event large stress test on mortality or morbidity is required that
could be 200% to 300% of base mortality/morbidity assumption.
Solvency-II take i5% increase in the mortality for being confident at 99.5%
within a year, however, such extreme event will land into the 0.5% area
of distribution and loss would be unknown, so it would be better to test
for extreme risk event and plan for resources.

Conclusion:

Despite risk management is in its early stage of development, insurance
Players in India should start looking into assessing impact of global risks
on their balance sheet. The Geo-Political risk on the one hand can impact
risks coming under insurance risk and financial risk categories, on the
other hand, environmental, Societal, and economic risks can make big
time impact on mortality, inflation and interest rate risk.

The key to the correct assessment of global risks on the local insurance
players would depend upon appropriate translation of global level of risks
into local level risk on regular basis along with application of right level
of stresses on the key risks. A penny spent of risk management today
may give a pound back in long term, so invest in risk management.

References:

World Economic Forum Report on Global Risk 2015, 10th Edition.

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150 | Risk Management in Current Scenario