Energy and food crises reshaping insurance: Swiss Re
September 9, 2022 11:05 PM
The energy and food security crises are redefining priorities for insurers, with growing focus on helping build economic resilience and facilitate the transition towards green energy, a report from Swiss Re found Friday.
Slammed first by the Covid-19 pandemic and now by the war raging in Ukraine, the once globalised and interconnected global economy is fragmenting in a multi-polar world, the study from the Swiss reinsurance giant pointed out.
This has spurred rising concerns about supply chain resilience and energy and food security, even as central banks are suddenly hiking interest rates to counter rampant inflation.
The dramatic shifts are having a profound impact on the insurance industry, according to the Zurich-based group, which acts as an insurer for insurers.
"We are living a paradigm shift," Swiss Re's chief economist Jerome Haegeli told reporters ahead of a big insurance convention in Monte Carlo.
"We have a crisis of the global economy," he said, adding that "We are facing a true economic storm, probably less like a hurricane which goes away, but more like a tsunami which comes in waves."
The supply chain restructuring underway risks delivering a blow to maritime insurers forced to cover increased business costs and losses, but it could also open new markets for insurers, the report found.
"Supply chain restructuring is expected to create investments in new infrastructure and production facilities, increasing demand for engineering insurance," Swiss Re said.
In a scenario where manufacturers in many advanced markets move production capacity back home, so-called reshoring, global trade activity would likely fall, but Swiss Re said its simulation indicated the additional investments in plants and equipment to expand domestic production would outweigh the negative effect, boosting global economic growth 0.18 percent on average each year from 2022 to 2026.
This scenario, which would spur most growth in the United States, Britain and Germany, "is forecast to generate an additional $30 billion in global commercial insurance premiums over the next five years, mostly from engineering, property and liability covers," Swiss Re said.
Efforts to shift to green energy, requiring the building of new infrastructure that will need to be insured, was meanwhile expected to generate additional premiums from the energy sector of $237 million by 2035, the report said.
The Swiss Re economists also highlighted the important role insurers can play in enhancing food security, pointing to how agriculture insurance can help farmers maintain income levels and continue farming even when facing crop losses.
Global agriculture insurance premiums are forecast to reach $80 billion by 2030, up from 46 billion in 2020, it said.