Regulating risk culture in the insurance industry using machine learning

Abstract This study examines the relationship between risk culture and regulation in the insurance industry using textual analysis and machine learning. By analyzing 10‐K disclosures, we classify firms into distinct risk culture clusters and find that the risk culture of insurance firms is significantly shaped by their uncertain risk strategies, constraints in defining, implementing, and reporting risks, as well as litigious decisions and risk management practices. A temporal prediction analysis indicates that large insurers maintaining a poor risk culture trend are less likely to reverse it compared to those improving. Moreover, insurance firms show enhanced risk culture post‐Dodd–Frank Act. Our findings underscore the potential benefits of regulations aimed at monitoring and overseeing insurers' risk practices.

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Publication Details

Journal
Journal of Risk & Insurance
Published
2025-05-07
DOI
https://doi.org/10.1111/jori.70009
Primary Topic
Insurance and Financial Risk Management
Type
article
Field-Weighted Citation Impact
0.00

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article

Regulating risk culture in the insurance industry using machine learning

Abena Owusu, Aparna Gupta
Journal of Risk & Insurance
Insurance and Financial Risk Management
article

Regulating risk culture in the insurance industry using machine learning

Abena Owusu, Aparna Gupta
article en

Abstract

Abstract This study examines the relationship between risk culture and regulation in the insurance industry using textual analysis and machine learning. By analyzing 10‐K disclosures, we classify firms into distinct risk culture clusters and find that the risk culture of insurance firms is significantly shaped by their uncertain risk strategies, constraints in defining, implementing, and reporting risks, as well as litigious decisions and risk management practices. A temporal prediction analysis indicates that large insurers maintaining a poor risk culture trend are less likely to reverse it compared to those improving. Moreover, insurance firms show enhanced risk culture post‐Dodd–Frank Act. Our findings underscore the potential benefits of regulations aimed at monitoring and overseeing insurers' risk practices.

Journal of Risk & InsuranceVol. 92(2)
Rensselaer Polytechnic Institute (US), Montclair State University (US)
Rensselaer Polytechnic Institute
Openalex Percentile: Top 86%
Insurance and Financial Risk Management
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