Risk management in the insurance sector: theory and practical implications
Journal
Journal of Business Economics
ISSN
0044-2372
ISSN-Digital
1861-8928
Type
journal article
Date Issued
2026-07
Author(s)
Abstract
This paper provides an overview of risk management in the insurance sector, combining theoretical principles with practical and regulatory perspectives. Starting with a simplified model of risk pooling, we demonstrate how diversification creates benefits for risk-averse policyholders. In a next step, we present a simple model to illustrate the main goal of quantitative risk management: The optimization of performance subject to a variety of constraints rather than a pure minimization of risks. We continue by reviewing the main fields of application of risk management and elaborate on the rationality of risk management due to market frictions. Finally, our discussion of solvency regulation and alternative policyholder protection mechanisms highlights the trade-offs between financial resilience, costs, and market efficiency. Overall, the paper demonstrates that, in addition to being a regulatory requirement, risk management in insurance is a strategic instrument for balancing policyholder protection, economic efficiency, and long-term sustainability.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Springer
Subject(s)
Division(s)