The COVID-19 pandemic and conflict in Ukraine have exacerbated de-globalization, creating concerns about supply chain resilience, energy and food security, according to a new report from the Swiss Re Institute.
Friend-shoring supply chains to allied countries and relocating production capacity domestically, investing in green energy and mitigating a food crisis will reshape the risk landscape and will likely stimulate increased investment in the real economy.
“Six months into the war in Ukraine, our world has changed dramatically,” said Jérôme Haegeli, Group Chief Economist at Swiss Re. “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 companies by covering supply chain risks.
“The industry can also facilitate transitions to a green economy by insuring and investing in renewable energy infrastructure, and by expanding agricultural insurance, it can contribute to global food security.”
Supply chain restructuring is expected to create investment in new infrastructure and production facilities, leading to increased demand for engineering insurance, Swiss Re said. The relocation is expected to generate an additional $30 billion in trade insurance premiums over the next five years, primarily through engineering, property and liability. Relocating friends would add $3 billion in premiums, Swiss Re said. Marine and commercial credit premiums would see a slight decline as global trade is expected to slow.
“As the risk landscape evolves, commercial property and casualty insurance will remain a pillar of resilience, for example by helping companies maintain financial stability as operating conditions change, providing solutions to help reducing cash flow volatility and stabilizing earnings during the realignment of supply chains,” said Gianfranco Lot, Head of Global Reinsurance at Swiss Re.
The effects of climate change have already underscored the importance of the green transition, and the Russian-Ukrainian war has added new urgency to the shift to renewable energy, Swiss Re said. Renewable energy involves complex risks that must be managed to avoid significant revenue losses.
“The insurance industry can play a key role in enabling the expansion of renewable energy by providing protection covers against the complex risks inherent in the construction and operation of renewable energy infrastructure,” said Swiss Re. .
Since renewable energy is only one part of the green transition, more investment in decarbonization is also needed if the world is to meet the Paris Agreement targets, Swiss Re said. to build all the renewable energy capacity they have targeted so far, the Swiss Re Institute estimates that these investments will generate additional energy sector premiums of $237 billion by 2035. However, the Transitioning to a green economy requires a global effort, and fragmentation due to geopolitical and security concerns could hamper the coordinated action needed.
Food prices have soared due to supply chain disruptions from the pandemic and war in Ukraine, Swiss Re said. next 30 years, global food security has become increasingly vital. Agricultural insurance can play a key role in helping farmers maintain income levels and continue farming even in the face of crop failure, Swiss Re said. Global agricultural insurance premiums are expected to reach $80 billion. by 2030, up from $46 billion in 2020.