Swiss Re says supply chain restructuring to generate $63bn insurance premiums

Swiss Re believes that supply chain restructuring following COVID-19 will drive new opportunities for the insurance industry with a potential to generate around $63 billion in additional global premiums over the next five years.

A new Swiss Re Institute sigma study suggests that the global supply chains are undergoing fundamental and accelerated restructuring as manufacturers are increasingly seeking to de-risk their operations, following the disruption to the flow of goods and services during the COVID-19 lockdowns.

It noted that the governments and manufacturers are ever more aware of the risks inherent in today’s increasingly complex, specialised and global production processes. Manufacturers are speeding up their development of parallel supply chain operations in new host markets alongside existing production bases as a means to diversify and strengthen their operational resilience.

“Global supply chain restructuring has become a key macroeconomic trend and the COVID-19 experience has accelerated changes," said Jerome Jean Haegeli, Swiss Re Group chief economist. “During the pandemic, lockdowns brought international exchange to a near halt, making businesses, and governments increasingly aware of the impacts that disruptions in today’s very complex and specialised global supply chains can have."

The reinsurer believes that supply chain restructuring will have important implications for insurers, by generating new demand for risk protection covers and providing new opportunities for the industry to underpin global economic resilience.

Insurance plays a key role in supply chain risk management, Swiss Re argues. Supply chain, contingent business interruption and non-physical damage covers can compensate for losses resulting from incidents at suppliers.

The sigma report estimates that the overall income effect from the higher growth created by supply chain restructuring will generate additional global premium volumes of around $63 billion cumulatively during the five-year transition period.

This includes a one-time boost of $1.2 billion arising out of new demand for engineering covers during the construction phase of manufacturing facilities and associated infrastructure, and $9 billion for commercial insurance in the operational phase of the new facilities.

“For insurers seeking to cover business disruption exposures, the more transparency there is on supply chain flows, the more insurable the risk becomes," said Gianfranco Lot, head of globals reinsurance at Swiss Re.

“To this end, the industry is extending its digital technology capabilities, to better process and understand all the structured and unstructured data out there. The idea behind the Swiss Re Digital Market Center is to develop large-scale tools to predict and manage exposures, to facilitate the development of innovative risk protection solutions."