In the 2007-08 financial crisis, insurance giant AIG’s mispricing of credit default swap risks was one of the most dangerous chapters in a drama that nearly destroyed the global economy.
While insurers’ role in the current crisis is yet to be written, it is likely to be more legalistic. The question yet to be resolved, at least for investors in the sector, is whether policy wording could yet leave insurers on the hook for substantial, potentially crushing, claims.
For the UK economy, this question has focused on two policy lines in particular: travel and business interruption.