Analysts from the Swiss Re Institute have concluded that the “friendly shoring” of supply chains to allied countries and the relocation of production capacity domestically, investments in green energy and the alleviation of a crisis will shape the risk landscape and likely increase investment in the real economy.
The world has seen many changes since the start of the pandemic and the war in Ukraine, events like these have exacerbated de-globalization 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, “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, said: “Six months after the start of the war in Ukraine, our world has changed dramatically. Triggered by war and the pandemic, we are moving from an interconnected world to a multipolar world facing 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, the restructuring of the supply chain is expected to create investment in new infrastructure and production facilities, thereby increasing the demand for engineering insurance.
The relocation is expected to generate an additional $30 billion in global commercial insurance premiums over the next five years, primarily from engineering, property and liability coverages. Friend-shoring would add $3 billion in premiums. On the other hand, maritime and commercial credit premiums would decline slightly as world 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 pillar of resilience, for example by helping companies maintain financial stability as conditions operating change, providing solutions to help reduce cash. the volatility of flows and the stabilization of profits during the realignment of supply chains. »
Moreover, while the effects of climate change have highlighted the importance of a green transition, Russia’s invitation to Ukraine has also added new urgency to the shift to renewable energy, the report notes.
Since the construction and operation of renewable energy assets involves a complex set of risks, analysts at Swiss Re have pointed out that the insurance industry can play a key role in enabling its expansion. This could be done by providing hedges to protect against the complex risks inherent in building and operating renewable energy infrastructure.
Analysts also noted that since renewable energy is only one part of the green transition, more investment in decarbonizing all sectors of the economy would be needed.
The Swiss Re Institute estimates that if countries complete the construction of all the renewable energy capacity they have targeted so far, the investment would generate additional energy sector premiums of $237 billion. here 2035.
Analysts have warned that with the transition to a green economy requiring global efforts, fragmentation based on geopolitical and security concerns could potentially hamper the required global coordinated action.
Adding to these issues, food prices have soared due to supply chain disruptions from the pandemic and the war in Ukraine. Additionally, extreme weather conditions like droughts and heavy rains in major agricultural countries have led to poor harvests, further pushing up prices, the report noted.
With these problems combined with a growing population, food security has become all the more paramount. As a result, according to Swiss Re, agricultural insurance has emerged to play a key role in helping farmers maintain their income levels and continue farming even in the face of crop failures.
Global agricultural insurance premiums are expected to reach $80 billion by 2030, up from $46 billion in 2020, the report concludes.