Be it of financial, political or monetary nature, affecting companies or individuals, crises do disrupt insurers preventing them from rebuilding their reserves. These recurrent crises are the result of a widespread disruption of the economic environment that surrounds the insurance business.
According to the World Bank, at least 1.5 billion people, or about 15% of the world population, live in countries tormented by repeated cycles of political and social violence, resulting in loss of human lives, destruction of the industrial fabric, values and properties.
The recent earthquake in Japan, alone, illustrates the functional failures of the State. The Japanese authorities have authorized the construction of a nuclear plant on the sea shore in a country highly exposed to earthquakes and tsunamis.
Incompetence, negligence or ignorance contributed to the downfall of entire countries and world-class companies. The sudden death of Enron, AIG and the expected collapse of the fourth largest producer of nuclear energy, the Japanese TEPCO, shows that many giant companies of international renown are totally disconnected from reality.
All these dysfunctions result in costs, triggering higher and higher compensation requests. But the insurance business has its limits. The market cannot withstand disproportionate losses, such as the one of Japan or the American coastal pollution by BP, nor can it overcome the shortcomings of a system that is falling apart.