By Andrea French and Mathieu Vital of the Banking and Insurance Analysis Division, and Dean Minot of the Insurance Policy Division.
Insurance companies play an important role in supporting economic activity. But insurers are exposed to a number of risks and can become distressed or fail. This article considers a number of channels through which insurance companies could have adverse effects on financial stability, including: how insurer distress or failure might disrupt the provision of critical services to the real economy; and how their behaviours can propagate systemic risk in the financial system. The Financial Policy Committee has an ongoing workplan to assess the extent of risks to financial stability from insurance companies’ activities.
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