This month saw the inaugural Global Risk Summit – hosted by the City of London Corporation.

Imogen Michell-Webb, Partner, highlights some key takeaways crucial to insurers and policyholders alike.

Helping insurers and other organisations navigate risk with expert legal insight is an integral part of our team’s expertise. Being prepared to manage external risks is as crucial to success as skilled underwriting practices or litigation management.

 

Understanding and planning for geopolitical risks is vital

We are all aware of the key geopolitical risks affecting global insurance markets, including the Ukraine/Russia war, the Middle East conflict and the unpredictable political regime in the US. In today’s world, geopolitical events are no longer standalone shocks but a constant and dynamic presence.
It’s vital for insurers – and all the service providers supporting them – to understand the consequences of global issues for the insurance market and the markets of their policyholders, and to build strategically aligned policies to manage them.

Insurers can’t influence geopolitical tides, so their focus has to be on monitoring situations, planning for various predicted outcomes and attempting to mitigate the negative impacts. In an increasingly globalised and unstable world, successful navigation of uncertainty underpins survival.

 

The success of AI adoption depends on commitment to integration

The discussion has moved on from whether to adopt AI, to when and how to do it. Many insurers and other risk carriers have already adopted AI to increase efficiency in operations, changing the way they interact with customers and helping to develop new products.

Three key aspects of successful AI adoption centred around integration:

  • The need to map out operations, infrastructure and processes to identify where AI can make a meaningful difference before trying to integrate off-the-shelf products.
  • Integrating tech engineers into a business to ensure the needs of the business are fully understood so that AI solutions will be fit for purpose (e.g. see the tailored legal/insurance products of HighFive).
  •  Focusing on integrating AI into the organisation’s culture, ensuring employees fully utilise AI without fear of losing their jobs.

 

The Straight of Hormuz is not the only shipping route we should be worried about

The consequences of restricted trade passing through the Strait of Hormuz due to the US/Israel conflict with Iran, and the direct impact on global oil and other goods prices, have been well publicised.

This is not the only global shipping route at risk. Various shipping ‘chokepoints’ face increasingly unpredictable risks that would have significant impacts on global supply chains, eg. the Bal el Mandeb Strait between Yemen and the Horn of Africa, currently at threat of interference from the Houthis.

As the state of international relations becomes more volatile, insurers’ risk modelling mechanisms need to keep track of the potential for more conflicts at sea and their global impact.

 

Natural catastrophe (natcat) risks continue to worsen

Natcat risks have given rise to over $100bn losses globally for the last three years. In previous years and decades risks such as wildfires, tsunamis and hurricanes were one-off events, but in recent years we’ve seen long-term elevated trends caused by climate change and rising global temperatures.

We can expect these loss figures to become the norm due to a combination of more frequent primary perils (causing significant losses) and secondary perils (causing low/medium losses).

As natcat risks increase in probability and significance, pricing pressures continue to worsen in the insurance market and there is increased concern about coverage gaps and underinsurance.

It’s currently unclear how the insurance industry will respond and how insurers, governments and policyholders can work together on risk mitigation, innovation and implementing adequate cover.

 

It’s a question of ‘when’ not ‘if’ with cyber attacks

As technology improves, so does the ability of cyber criminals to defraud and attack insurers and their policyholders. Historically, state-backed cyber crime was the major concern, but now individuals can wreak havoc on businesses from their bedrooms.

As organisations are more reliant than ever on technology, the impact of cyber attacks has become ever more significant; from supply chain disruption to customer data breaches. The key advice is for organisations to develop, stress test and implement cyber crisis plans to provide a crisis management framework setting out who is responsible for what both operationally and in terms of reputation management.

From an insurance product perspective, relatively low cyber coverage take-up is still a concern, as well as ‘silent cyber’ coverage being unintentionally included in non-cyber policies.

 

With instability comes great opportunity!

The London Market is world-renowned for offering insurance solutions for the most valuable and complex of risks. The Summit highlighted the challenges and concerns arising from increasing global risk and instability but in a market known for its dynamism and innovation, there are also opportunities for insurers who are willing and able to embrace them.

To discuss any of the above issues and how HF can help navigate the multiple risks facing insurers and policyholders, please contact Imogen on imogen.mitchell-webb@h-f.co.uk.