Systemic Importance of Insurance Companies—An Empirical Analysis

Abstract

Insurance companies are increasingly being regulated under the assumption that, like banks, they pose systemic risk to the overall economy and especially the financial system. This analysis investigates this premise by comparing the systemic importance of insurance companies and the insurance industry with that of banks, brokers, real estate firms, and their respective industries. Empirical results suggest that intra-industry linkages exist among insurance firms, although they are comparatively weaker than those in banking and real estate. Moreover, systemic risks arising from the effects of distress in other economic sectors are lower for insurance companies—although not negligible. Given its size, systemic problems arising over time from the insurance industry would have a very disruptive macroeconomic impact.