An uncertain geopolitical situation and the impact of climate-related damage and disasters in recent years have left the insurance industry and its customers facing challenges not seen in a generation.
This has coincided with the persistent rise in inflation in developed markets as central banks seek to manage interest rate hikes amid a looming cost of living crisis that shows no signs of slowing in the context of soaring energy costs.
The inflationary challenge highlights the long-standing issue of asset valuations. Regular and thorough assessments have always been essential for effective insurance coverage, but too often these assessments are not carried out with the necessary frequency and rigor.
In an inflationary environment, the risks are even greater. Asset valuations become obsolete more quickly and if insurers and brokers do not inform customers of the importance of this situation, the risk that coverage will fail to cover losses increases.
In most cases, higher valuations mean higher premiums, but none of us can afford to dodge those difficult conversations needed to ensure customers are properly protected, with wordings making the scrutinized and flexible coverages and associated costs more likely to be restricted or excluded.
Business interruption coverage – learning lessons from Covid
The rise in inflation stems largely from rising energy costs, exacerbated by the situation in Ukraine. And the energy crisis comes with additional risks for the industry and its customers. In some mainstream economies, discussions have already turned to the possibility of energy rationing.
In addition to having a direct impact on a customer’s business, restrictions on energy consumption will have unpredictable consequences on supply chains.
Again, business interruption coverage becomes a major factor. The Covid crisis has seen business interruption claims become the subject of regulatory interventions and legal challenges, all of which should have been a wake-up call.
Preparing for the possibility of outages due to power rationing should be high on the agenda and brokers will need to identify the best solutions with carriers that offer the widest coverage in the event of third-party utility outages.
Lessons from the past show once again that clients rely heavily on their brokers for guidance in navigating these issues, as the industry comes together to face these challenges and avoid further damage to its credibility. Brokers all along the chain, from the direct side through to optional reinsurance, have a role to play.
Uncertain times call for an experienced hand
The current state of the global economy, geopolitics and, of course, the increasing incidence of disaster-related claims resulting from the effects of climate change have made the world a more uncertain and fragile environment.
To serve customers effectively, brokers must be more than just transactional agents. Price is important, but it’s only part of the equation. To succeed, we need to provide a more sophisticated service, underpinned by data-driven technology.
This is a particular challenge given recent history. An extended period of weak market conditions means that the current price hardening is a new experience for many customers and even young professionals in our industry. Meeting the challenges, especially inflation, requires innovative responses. It also requires professionals with significant experience.
“To effectively serve clients, brokers must be more than just transactional agents”
At Acrisure Re, our senior managers are intimately involved in day-to-day operations – guiding and advising clients. All leaders must be comfortable with the use of technology and data, as the issues we face require detailed and complex risk analysis, both scientific and economic.
Unfortunately (at the time of publication), the conflict in Ukraine shows few signs of resolution in the near future. Uncertainty will continue, coupled with lingering inflationary risks to valuations, premiums and claims, alongside the continued threat of disruption to business operations and supply chains.
Our industry’s role, across the board, is to help customers prepare for this uncertainty – in fact, it’s the very essence of our existence. More than ever, we need to support our customers, not just with short-term pricing solutions, but with a holistic view of their business to help them mitigate, manage and deliver the right solutions, building on past experiences. .
We are facing economic challenges that have not been seen in a generation. Our industry now has the opportunity to show its courage and demonstrate the essential value we can deliver.
Ghassan Mansour is Head of International Facultative Reinsurance at Acrisure Re