Building a Risk-Aware Culture at AIG Post-2008 Crisis

What is Risk Culture?

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Risk culture refers to the norms, attitudes, and behaviors of individuals and groups within an organization that determine how they identify, understand, discuss, and act on current and future risks. It is essentially "how people think about risk and how they behave in relation to risk".

In an insurance company, risk culture defines:

• How underwriters assess and price policies,

• How claims teams evaluate fairness,

• How investment managers balance returns with prudence, and

• How management responds to red flags or early warning signals.

A strong risk culture encourages transparency, accountability, and proactive action, while a weak one fosters short-term gains, complacency, and potential systemic crises.

Importance of Risk Culture in the Insurance Industry

1. Foundation of Trust

Insurance is built on trust-policyholders rely on insurers to honor promises decades into the future. A sound risk culture ensures that promises are not undermined by reckless practices.

2. Long-Term Sustainability

Unlike other industries, insurers deal with long-tail risks (life, liability, catastrophe). Poor risk management today can jeopardize solvency years later.

3. Regulatory Compliance

Global frameworks like Solvency II, IFRS 17, and IRDAI's Risk-Based Supervision (RBS) all emphasize risk culture as a prerequisite for sound governance.

4. Crisis Prevention

Many insurance failures (AIG 2008, Equitable Life UK 2000, etc.) stemmed not from lack of models but from poor governance and risk culture, where warning signs were ignored.

5. Competitive Advantage

Insurers with strong risk cultures can price products better, respond faster to emerging risks (cyber, climate, pandemics), and maintain superior credit ratings.