Analysts from the Swiss Re Institute have concluded that “friend-shoring” of supply chains to allied countries and reshoring production capacity domestically, investments in green energy and mitigating a food crisis will shape the risk landscape and likely increase investments into the real economy.
The world has seen several changes since the start of the pandemic and the war in Ukraine, events like these have exacerbated deglobalisation, and created an environment where concerns about supply chain resilience, energy and food security prevail.
It is against this backdrop that analysts conducted the study titled “Maintaining resilience: the role of P&C insurers in a new world order”, which highlighted how vital insurance is becoming to the economy.
Jérôme Haegeli, Group Chief Economist at Swiss Re, commented: “Six months into the war in Ukraine, our world has changed dramatically. Triggered by the war and the pandemic, we are shifting from an interconnected to a multi-polar world faced with disrupted supply chains, energy and food crises.
“Insurance is becoming even more vital to the economy, contributing to the financial stability of businesses by covering supply chain risks. The industry can also facilitate the transition to a green economy by insuring and investing in renewable energy infrastructure, and by expanding agricultural insurance, it can contribute to global food Security.”
According to the report, supply chain restructuring is expected to create investments in new infrastructure and production facilities, increasing demand for engineering insurance.
Reshoring is forecast to generate an additional $30bn in global commercial insurance premiums over the next five years, mostly from engineering, property and liability covers. Friend-shoring would add $3bn in premiums. On the other hand, marine and trade credit premiums would decline slightly as global trade is expected to slow.
Gianfranco Lot, Head Globals Reinsurance at Swiss Re, said: “In the changing risk landscape, commercial property and casualty insurance will remain a mainstay of resilience, for instance by helping businesses maintain financial stability as operating circumstances change, providing solutions to help reduce cash flow volatility and stabilising earnings while supply chains are being realigned.”
Additionally, while the effects of climate change have highlighted the importance of a green transition, the Russian invitation of Ukraine has also added new urgency to the shift to renewables, the report noted.
As building and operating renewable energy assets involves a complex set of risks, Swiss Re’s analysts highlighted that the insurance industry can play a key role in enabling its expansion. This could be done by providing risk protection covers for the complex risks inherent in constructing and operating renewable energy infrastructure.
Analysts also noted that, since renewables are just one component of the green transition, more investment in decarbonising all sectors of the economy would be needed.
Swiss Re Institute estimates that if countries deliver on building all the renewable energy capacity they have been targeting so far, the investment would generate additional premiums from the energy sector of $237bn by 2035.
Analysts warned that as the transition to a green economy requires global efforts, fragmentation based on geopolitical and security concerns could potentially impede the global coordinated action required.
On top of these issues, food prices have soared due to supply chain disruptions from the pandemic and the war in Ukraine. Additionally, extreme weather like droughts and heavy rains in key farming countries have led to crop failures, further increasing prices, the report noted.
With these issues combined with a growing population, food security has become all the more paramount. As a result, according to Swiss Re, agriculture insurance has emerged to play a key role in helping farmers maintain income levels and continue farming even in case of crop losses.
Global agriculture insurance premiums are forecast to reach $80bn by 2030, from $46bn in 2020, the report concluded.
