As we know from this recent crisis, incentives and a disproportionate focus on short term gains played a central role. This does not mean that we should put on hold initiatives that would promote a more competitive, efficient and sustainable insurance sector. But it does mean that we need to ensure that we have sufficient confidence in the system of checks and balances that exist to safeguard the interests of financial consumers and the long term viability of the industry. Corporate governance is clearly an essential part of that system of checks and balances. As the Government embarks on the Economic Transformation Programme, demand will increase for new and innovative solutions for investment, protection and risk diversification. As presented in the Bank’s Financial Sector Blueprint, expectations are for the insurance industry to be able to deliver a wider range of insurance products that include medical and  BIS central bankers’ speeches  1  health insurance, risk protection offerings for small and medium businesses as well as products supporting the global expansion of Malaysian businesses. Stronger insurance companies are also expected to expand beyond our domestic shores. These developments present tremendous opportunities, but also new risks that must be managed. As individual insurers chart their own paths in this landscape, strong governance systems will assume greater importance to keep business standards in check and to guard against actions that would put the long term interests of the company at risk.
It can be anything from three to ten years 11 , and the turning points therefore become difficult to predict. Economic downturns, that is, the period when the economy moves from a peak to a trough, are usually shorter. The normal condition for the economy is thus a growth phase. 12 The current economic cycle After this review of common cyclical patterns I shall take up some specific features that characterise the current downturn. Following the recent turbulence in the financial markets it can easily be forgotten that there are also elements of a “normal” slowdown in economic activity on this occasion, too. Even before the financial crisis took a serious hold in summer 2007 it was possible to see in the Riksbank’s and other analysts’ forecasts that a slowdown in economic activity was expected both in Sweden and abroad. Since then the world economy has been exposed to major shocks that have led the Riksbank, like other forecasters, to revise down the growth forecasts for the coming years. The financial crisis has proved to be more profound, more prolonged and to have more ramifications than one might initially have expected. In the most recent phase of the crisis the  10  The Riksbank’s own calculations. See also the box “Future labour market developments – experiences in other countries and the significance of growth composition” in Inflation Report 2005:2. 11  The longest expansion phase the NBER has noted for the United States was 10 years, between March 1991 and March 2001. 12  NBER.