Moses Ojeisekhoba, Chief Executive Officer (CEO) for Reinsurance at Swiss Re, has warned that climate change will have a longer-lasting impact to global supply chains than has been seen from COVID-19.
Supply chains around the world have been negatively impacted by the global COVID-19 coronavirus pandemic, driving inflationary fears and resulting in shortages of products and materials.
Swiss Re had previously forecast that the world’s supply chains were changing fast and that the increasing complexity of global supply chains would drive more risk and also entirely new exposures.
“Restructuring of supply chains has become a key global macroeconomic trend, which will present opportunities for innovation in new insurance solutions,” Jerome Jean Haegeli, Group Chief Economist, Swiss Re explained at the time.
Which led Swiss Re’s research team to conclude that changes to global supply chains could generate around US $63 billion in additional global insurance premiums just over the next five years.
Swiss Re’s CEO of Reinsurance Moses Ojeisekhoba discussed the issue of supply chains recently, explaining, “The global supply chain is expected to remain a challenge through 2022, slowing down economies and fuelling inflation. The mismatches between supply and demand for a broad range of commodities from electronic chips, to furniture, bikes, paper and other goods could further intensify if economies pick up as expected. Shortage of labour could also exacerbate the imbalances.
“Investments in infrastructure expansion will alleviate some bottlenecks, but not nearly enough. Companies are grappling with this dynamic environment as they face extended waits for orders and increasingly impatient customers have no choice. They have to adapt to the changing supply chain reality and the series of new risks this brings.”
Companies are already attempting to de-risk their supply chains and the impacts of a global supply chain crunch by relocating some of their operations and optimising their own processes.
But a range of other issues are also set to continue elevating prices, including the “deglobalisation trend”, which Ojeisekhoba said could “lead to structurally higher prices and weigh on household consumption in the long term”.
As a result, Swiss Re sees a role to help clients understand the impacts of changes to global supply chain dynamics to their risk profiles, Ojeisekhoba believes.
But this will also required new and innovative insurance and reinsurance models to emerge.
“With the changing risk landscape of global supply chains, risk models and coverage must be adapted. Apart from diversifying the geographic locations of suppliers, there is also a big push to increase the transparency of the supply chain so that emerging disruptions can be detected in advance, before a crisis occurs,” Ojeisekhoba further explained.
Adding that, “When it comes to evaluating systemic supply chain risk, data is crucial. Being able to take single data points and understand their impact on entire networks is one of the foundations of supply chain risk management.
“As a global reinsurer, Swiss Re is an aggregator of vast amounts of data regarding the movement of goods around the world. Combining external data sources with sophisticated risk and data modelling techniques gives us a clear understanding of risk throughout the entire supply chains.
“We use this knowledge to make evidence-based decisions, pinpoint vulnerabilities, and address risks with the appropriate insurance products.”
The COVID-19 coronavirus pandemic has weighed heavily on supply chains and Ojeisekhoba noted that it has “exposed vulnerabilities” in some.
However, in many cases he believes the effects and influences that have driven supply chain disruption were already present in economies around the world, before the pandemic came along.
On a cautionary note, Ojeisekhoba explained that there are other influences that may have a more profound and long-lasting effect on global supply chains.
“The impacts of climate change on supply chains are bound to last longer than those of the pandemic,” Ojeisekhoba said. “This year alone, unusually heavy monsoon rains and flooding have affected vast swathes in Asia, including industry-intensive regions in India, Japan and China, complicating production and logistics for manufacturers worldwide.”
To help its clients on this, Swiss Re is utilising its catastrophe modelling tools to allow clients to pinpoint potential supply chain exposure to catastrophe, weather and climate related events.
“Robust global analytic capabilities can facilitate a forward-looking approach to risk management that anticipates emerging threats,” according to Ojeisekhoba.
“Greater availability of better data improves not only modelling capabilities, but also helps to make the interaction between members of a supply chain ecosystem more efficient.”