The financial crisis, systemic risk, and the future of insurance regulation

Abstract

This article considers the role of American International Group (AIG) and the insurance sector in the 2007-2009 financial crisis and the implications for insurance regulation. Following an overview of the causes of the crisis, I explore the events and policies that contributed to federal government intervention to prevent bankruptcy of AIG and the scope of federal assistance to AIG. I discuss the extent to which insurance in general poses systemic risk and whether a systemic risk regulator is desirable for insurers or other nonbank financial institutions. The last two sections of the article address the financial crisis's implications for proposed optional and/or mandatory federal chartering and regulation of insurers and for insurance regulation in general. © The Journal of Risk and Insurance, 2009.