EMB Warns of Global Economic Impact on Insurers

EMB, a global property and casualty (P&C) consulting firm, is urging insurers worldwide to refine their enterprise risk management (ERM) strategies to be able to minimize the indirect yet threatening effects of the global economic meltdown.

Having already endured a loss of capital from investments, a direct result of the economy, P&C insurers now face indirect effects, such as the rise in claims frequency including fraudulent activity that correlates with financial turmoil.

EMB warns insurers to look for certain red flags that might indicate increased fraud as a part of their ongoing ERM strategies. Specifically, insurers should be on the lookout for increased auto insurance claims and spikes in workers compensation claims – both historic early indicators of surges in insurance fraud.

Currently, fraud accounts for approximately 10% of loss payouts in the P&C industry, and that number is slated to rise as the downturn continues. As this increase occurs, the importance of ERM strategies becomes even more evident. ERM involves identification, assessment, mitigation, and monitoring of risk across a business, and these actions are imperative to discern fraud-related activity and avoid further losses of a rapidly depleting surplus.

Writers of Directors and Officers insurance – policies that cover employment liability – are affected legitimately and directly by an increase in claims resulting from the economic collapse. Other types of insurers, such as those covering auto, homeowners and workers' compensation policies, are more inclined to be affected by the indirect impact of a poorly performing economy – increased fraudulent claims.

EMB continues to emphasize the need for companies to break down the silos in developing sound ERM practices. Actuarial, claims, and underwriting must all be on the same page while managing the financial impact of fraud and other claims frequency increases.

While new techniques are allowing companies to identify with greater accuracy the types of claims likely to be fraudulent, companies will also need to have practical implementation options to assist with regulatory and consumer restrictions in a worsening economy.