Since the start of the Russia`s War in Ukraine, the global (re)insurance industry has been working to help those affected by the conflict: deploying our resources in support of the humanitarian response, our solidarity in support of the global sanctions regime, and our expertise through risk advice and in force cover.
The scale of the war’s impacts
The scale and scope of the war’s impacts point to the central role that must be played by the global insurance industry in responding. Insurance is a core part of a resilient society, providing protection when the worst happens and preparation for the risks that may lie ahead – so the products and services provided by the sector must be sufficient for the challenge ahead (see How to Russia’s War in Ukraine is Changing the World).
In the aftermath of the war in Ukraine, therefore, building resilience against current and emerging risks is essential. The insurance industry has a formidable toolkit at its disposal to help organisations build that resilience, whether through the swift payment of claims to keep businesses afloat; removing risks from company balance sheets to reduce their exposure to the crisis; or providing advice on risk mitigation and management to ensure they are prepared for a range of outcomes.
Following the conflict, the insurance industry has a formidable toolkit at its disposal to help organisations recover and build their resilience, whether removing risks from company balance sheets to reduce their exposure to the crisis; providing advice on risk mitigation and management to ensure they are prepared for a range of outcomes; or mobilising capital to support the rebuild from the crisis.
Innovation in the Insurance sector
Innovation in the sector – powered by investment and collaboration – will be essential to insurance taking this leading role. New products and new ways of sharing risk must be developed to help businesses navigate the uncertain landscape.
Leading insurers and brokers are working collaboratively to enhance products, coverage and capacity for sustainable initiatives in a bid to support climate transition. Comprehensive policies are already in place providing cover for risks from power installation to project interruption – alongside the risk management and advisory facilities to offer the supporting expertise. Carefully designed products can also enable insurers to help businesses mitigate risks around new low carbon technologies such as carbon capture and battery storage.
The Role of the insurance industry in security
Alongside this, the insurance industry will play a role in supporting energy security objectives.
With European nuclear plants likely to remain open in order to meet short term energy demands, insurers will continue to work with governments and operators to support the nuclear industry.
At the same time, continued provision of carbon offset credits to companies can help clear the way for a more constructive transition to a net zero economy. Insurance regulators, supervisors and capacity providers will set the conditions that will facilitate this transition.
To build resilience in global supply chains – while business interruption solutions are purchased by most companies, damage from acts of war or in occupied territories are usually excluded from such policies, limiting the breadth of support insurers can offer.
However, as businesses identify and partner with alternative direct and indirect suppliers, with reduced exposed to the conflict, the insurance market will be well placed to provide a breadth of products from business continuity to trade disruption insurance and transport-affiliated coverage (such as marine hull and cargo insurance products – see Aviation, Marine & Cargo Global Insurance Market Forecasts).
For food security, insurers and brokers are providing risk management services for the industry’s production, processing, and distribution concerns; including protecting against agriculture risks, supply chain disruption, commodity price volatility and reputational risks. As companies seek alternative raw ingredient sources, insurers are again well placed to help companies understand the associated product recall and contamination risks.
Impact of cyber risks
Cyber risks are climbing up most organisations’ internal risk agendas, with malware threats becoming increasingly apparent and severe.
Companies with complex supply chain networks remain most at risk, and for these firms developing cyber resilience and enhancing cyber security will be a priority (see Most Effective Insurance Solutions for Cyber Risk).
The insurance market can work closely with third party cyber specialists to offer risk management services such as stress tests, resilience training and forensic analysis to identify potential IT infrastructure exposures. Cyber insurance remains a relatively immature although still-growing market in most industrialised countries, with insurers looking to develop models to better quantify these risks and structure policies to address businesses’ needs effectively and sustainably.
Reputation and crisis management
As political tensions increase in the wake of the conflict, western companies will remain conscious of public sentiment and ESG risks arising from associating with Russia.
Leading insurers provide reputation insurance and crisis management products to help businesses deal with the financial losses incurred as a result of public scrutiny and damage. Other products such as Directors & Officers D&O insurance will likely see increased demand, with many stakeholders looking to company boards for ways to navigate and address the impacts of the war.
As an industry, insurers should pool their expertise, resources and capacity to drive the product innovation that can help businesses respond and alleviate stresses on the global economy.
While these are immediate solutions – many of which are already available – the insurance industry will need to challenge itself to address the broader protection gaps that will emerge in a well-managed and sustainable way.
Customers are looking to the insurance industry to meet this opportunity. As an industry, insurers should pool their expertise, resources and capacity to drive the product innovation that can help businesses respond and alleviate stresses on the global economy.
Policies and products aren’t the only tools at the insurance industry’s disposal. Insurance’s central position at the heart of a functioning society – covering almost every product, asset and individual – offers it the unique ability to convene business, governments, regulators, investors and many others to take a coordinated approach to building societal resilience. As the scenarios outlined in this report make clear, the risks facing society can no longer be viewed in isolated categories; and they cannot fall to any one individual, business or industry to address.
COVID-19, climate change and the invasion of Ukraine have all highlighted the systemic frailties embedded in our economies and societies – and the irreversible fusing of our world.
As we respond to the crisis’s many overlapping impacts, our approach must be similarly fused. Insurance can play a leading role in plugging protection gaps and building resilience – but it cannot do it alone.