Insurance and Financial Services Professionals Essay

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Briefly describe your career field or a field of interest to you.

Both the insurance and financial services industries play a very critical role within society. As it relates to insurance companies, they help to safeguard and mitigate loss relates to unexpected events. They also help to lessen the financial burden associated with the eventual recovery from the loss event. Earthquakes, Floods, Hurricanes, and other natural disasters are very difficult to predict on a year to year basis. Even more uncertain, is the severity of the damages associates with such an event. Many families in the United States live paycheck to paycheck and can not afford an unexpected $500 expense. Insurance is designed to lower the overall uncertainty that can result when an insured loss event occurs. Insurance covers the risk that individuals or corporations are unable and unwilling to cover themselves. As many of these risks can be very severe, it is important to have a strong and vibrant insurance industry that can endure an economic catastrophe. We saw in 2008, when the credit markets froze how important both insurance and financial institutions were to the global economy. Many banks and insurance companies including Bear Sterns, Lehman Brother, Long Term Capital Management, and others went bankrupt. As these forms when bankrupt it threatened the overall viability of other insurance and banking institutions. AIG for example, was forced to accept a large government ownership stake or it would have gone bankrupt. The 2008 financial crisis underscores the importance of not only having strong insurance industry, but also that the industry can remain viable under extreme stress.

The same concept applies to financial institutions. Here, financial institutions act as intermediaries between investors and savers. Individuals with high amounts of savings are often looking to deploy that capital into activities that can yield high rates of return. Likewise, businesses are often in search of capital to expand operations or to invest in new product development. Financial institutions, and, investment banks look to marry savers in search of investment returns with businesses looking for capital to deploy. This exchange ultimately increases the quality of life of society as banks can facilitate the exchange of capital to business who produce goods that are demanded by society. The saver benefits through a return on investment. The business benefits through access to capital and society benefits through innovative products and solutions that increase profits for shareholders. Banks also preform the critical task of safeguarding and enabling mission critical task that keep the economy moving forward. These include auto loans, mortgage loans, automatic bill pay, direct deposit services, retirement services, brokerage services and more. All these services are required for a fully functioning economy to prosper and are therefore critical to its overall development.

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As an analogy, financial institutions are the oil that powers the economic engine.

Explain what drew you to this field.

As noted above, the 2008 financial crisis was a fascinating period in economic history. In U.S. history that has never been such a period as it relates to overall markets. Credit markets froze, there was widespread speculation in an asset class many believes could not decline. Regulations, oversight, and underwriting standards are were…

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…lower traches offered investors with more yield, but they were more susceptible to pre-payments risk or other forms of loses. The higher tranches received lower yields but much higher security. This “innovation” allowed pensions funds and other institutions clients to participate in the booming housing market. The asset diversity allowed credit rating agencies to rank many of these financials innovations as AAA. Consumers also purchased these securities to further participate in the housing market boom. However, very few people understood the underlying assets that were behind these securities. As the housing market collapsed this “Financial Innovation” quickly lost 90% of its value. It is therefore important to understand the overall incentives behind financial innovations and developments to make sure they align with an individual’s investment goals. All too often however, speculation and greed give way to the actual evaluation of new financial products (Chorafas, 2009).

It is also important to remain current on technology in the financial services industry to better understand how the industry will evolve. As noted above, financial institutions are very important to facilitating financial transactions. Technology is a key component of this mandate. As a result, staying current on technology allows consumers to leverage any new technology for their benefit.

Explore ways to get and remain current in your field as you move toward a degree and as you are working in the field

The best and most practical way in which to stay current is to subscribe to various financial publications. To stay current, I intend to subscribe to the Wall Street Journal, Barron’s, and the Economist. In addition, I intend….....

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