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Published : 2025-02-17
Vol. 97 No. 4 (2024)

The importance of the insurance sector for the stable functioning of the financial system and the real economy

Krzysztof Budzich



DOI: https://doi.org/10.26354/bb.1A.4.97.2024

Abstract

Financial system stability (financial stability) is crucial for the proper functioning of modern economies. Among the many institutions that influence this stability are insurers. Traditionally, they play a stabilizing role in economies, because their primary role is to diversify risk. In addition, the literature indicates numerous other functions of insurance and insurance companies in the economy. However, they can also contribute to generating systemic risk, especially when they engage in non-insurance activities. The aim of the article is therefore to determine the role of insurance and insurance companies for the proper functioning of the financial system and the real economy. For this purpose, a review of the results of empirical studies published in the scientific literature was conducted. An analysis was also made of the guidelines and recommendations of global, European and national supervisory institutions and institutions dealing with crisis management, concerning increasing security on the insurance market. The analysis leads to the conclusion that the impact of insurers on systemic risk is increasing, primarily due to their growing role and interconnections, both with each other and with other financial market entities. The majority of the literature on the subject indicates that a potential source of systemic risk from insurers is their non-insurance activities (investments, transactions related to securities and derivatives). However, the growing probability of negative consequences of insurer bankruptcy requires appropriate mechanisms to manage such a situation.

Keywords:

insurance, systemic risk, crisis management, resolution

JEL Codes

G01, G22, G32


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Budzich, K. (2025). The importance of the insurance sector for the stable functioning of the financial system and the real economy. Safe Bank, 97(4), 6–21. https://doi.org/10.26354/bb.1A.4.97.2024

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