"There is a lot of interest and concern about what this systemic risk regulator truly is, what his or her authority will entail, and what it all means," Johnston says. Regardless of how--or whether-- this risk regulator ultimately materializes, economic conditions have raised the importance of enterprise risk management (ERM) for insurers.

"We will highlight some very recent developments in ERM and the acceleration in the trend of adoption by companies of more robust ERM programs," says Johnston. "Insurers are recognizing they need to be moving up in the ERM adoption and learning curve, if for no other reason than state and federal regulators and other external parties they deal with are pushing them in that direction."

The session plans to explore impacts of the economy on the life/annuities sector, including its strategies for dealing with the structure and pricing of products that have led to drains on earnings and surplus in light of double-digit investment market declines. On the P&C pricing side, at the same time Johnston expects the soft market to continue to present obstacles to growth, insurers simultaneously will be challenged to defend certain pricing mechanisms, such as credit scoring, that are sensitive to economic fluctuation.

"With households experiencing one or more income-earners being laid off, housing values dropping, and investment portfolios declining, there's a general consensus credit scores will be impacted as a result. If that happens, and if P&C insurers continue to use their preexisting credit scoring models, they are going to see pressure from consumer groups, regulators, and politicians, even though credit scoring is an important tool in the underwriting process," Johnston predicts.

Consumer Changes

"Asset prices have fallen," he says. "However, debt still is at elevated levels, and it has to be dealt with. Consumers' and investors' mindsets already have changed as a result, and you need to incorporate that reality into your economic forecasting."

Lower consumer spending caused both by asset depletion and high debt levels may result in a softer and slower recovery than in a normal post-recession period, which will impact insurers, as well. "This time around, it won't be the quick, market-driven turnaround we've become accustomed to seeing," Starrett says. "When we see growth return, it will be much more modest--perhaps two percent, whereas normally it's about six percent."

Ultimately, economic projections are a mixed bag for insurers, but understanding reality is the key to preparation. "It's not a great story with an 'all clear' signal and a definitive happy ending," Starrett says, "but it's the right story.