The Insurance Business: How was it impacted during the financial crisis?

The financial crisis has affected most businesses but one of the most seriously hit was the insurance business. By the nature of their business the insurance companies are intimately tied to the financial markets so when they suffer a downturn it hurts the insurance companies. There has clearly been a major impact on the insurance business but it has turned out not be as bad as many people feared that it would be.

The impact of the financial crisis on the insurance business has been serious but not disastrous. Certainly the insurance companies have been hurt by it but for the most part they have managed to survive. There have been a few companies that have suffered more than others but for the most part the insurance companies took precautions to make sure that they would not be exposed to too much risk, at least the well run companies did. The result is that for the most part the insurance business has acted as something of a stabilizing influence on the financial markets.

The main reason that the insurance business suffered during the financial crisis is that they are major investors in the financial products that caused so much trouble. The business of insurance companies is to collect premiums from their customers and to invest that money to create a pool that can be used to pay out claims. The massive loss in value of most financial investments meant that the insurance companies ended up losing a great deal of money which had to be made up to ensure that there were funds available to pay out any claims.

Most insurance companies have very diversified portfolios to make sure that they are protected in the event of a major market downturn. In this case this turned out to be a problem. In order to diversify many insurance companies invested heavily in mortgage backed securities which were largely responsible for the financial crisis. According to insurance executive Steve Heyer the insurance companies that made sure that they did not put too many eggs in one basket have come through the crisis in reasonably good shape.

Not only have most insurance companies managed to survive but they have also proven to be a stabilizing influence. This is largely because insurance companies are large investors who by the nature of their business have to keep their money invested. Therefore when everybody else was selling the insurance companies were largely buyers in the financial markets. This played an important part in making sure that the markets did not fall any further than they did. Over the long term this should put the insurance companies in a good position since they were able to buy at very low prices but it will take some time for the value of their investments to go back up.