Emerging global supply chains present new opportunities for insurers

As parallel supply chains form around the US and Asia—particularly China—the insurance industry has a growing opportunity to offer cover in areas such as business interruption (BI), also contingent BI and non-damage BI, according to Jérôme Jean Haegeli, group chief economist at Swiss Re.

“Parametric solutions could also be more in demand because it allows a much more simplified and a transparent process,” Haegeli added.

Speaking in a Swiss Re-curated session titled “De-risking Global Supply Chain: Strengthening Resilience in a time of Disruption”, during the SIRC 2020 Re-Mind virtual conference, taking place this week, he examined the economic trends shaping the market.

“In the third quarter the global economy is lifting off from the deep recession,” he said. “The worst is behind us.”

He added that Asia is steaming ahead but overall the global economic recovery will be protracted.

“Watching what is happening on supply chain front is extremely important,” he said.

He noted that estimates suggest the emerging parallel supply chains will generate around $1 trillion from additional exports and investments globally, boosting growth and adding $63 billion from insurance premiums over a five-year period.

“Yes, supply chain changes are happening, they are real, and I think in the bigger picture this is positive,” Haegeli said. “There are real opportunities during the transition.

“The estimate of $63 billion of insurance premiums over a five-year period is significant and definitely on the very conservative side—for example, it doesn’t include the innovation which is likely to happen and which will also drive insurance demand and insurance premiums.”

“Adverse impacts on growth will be larger should politics lead to more friction in the trade of goods and services.” Jérôme Jean Haegeli, Swiss Re

Politics matters
Haegeli said that while medium-term global growth is expected to increase, longer-term economic growth looks set to be adversely affected. The adverse impacts on growth will be larger should politics lead to more friction in the trade of goods and services, lowering productivity growth.

“The US elections are super important and what’s happening on over the next five years on the political front is also,” he said.

He added that, looking to the future, having too many supply chains would be optimal—it’s vital to keep geopolitical risks in check and make sure that tariffs do not escalate, in order to ensure the opportunities that lie ahead over the next five years do not lead to suboptimal outcomes beyond that timeline.

While growth forecasts are important, Haegeli noted, it was important to consider what is happening in the inflation and interest rate fronts. He said negative interest rates create a very challenging environment on the asset side and for inflation expectations, which means insurers have to watch out for claims inflation.

He placed the recent recession in context, highlighting the fact that it while COVID-19 has provided the deepest recession in our lifetimes, the economic environment and global resilience were already weak before COVID-19 hit.