Inflation, business interruption and uncertainty will put our industry on its mettle

The global economy faces challenges not seen for a generation. As inflation rises and geopolitical uncertainty continues, Acrisure Re’s Ghassan Mansour believes clients will need expert guidance more than ever…

An uncertain geopolitical situation and the impact of climate-related damage and disasters over recent years have left the insurance industry and its clients facing unprecedented challenges not seen for a generation.

This has coincided with the persistent rise in inflation across developed markets, as central banks look to manage interest rate rises amid a looming cost of living crisis that shows no signs of slowing down against the backdrop of spiralling energy costs.

The inflationary challenge throws into sharp relief the long-running issue of asset valuations. Regular and thorough valuations have always been essential for effective insurance coverages, yet too often those valuations are not carried out with the necessary frequency and rigour.

In an inflationary environment, the risks are even greater. Asset valuations become outdated more rapidly and if both insurers and brokers do not advise clients of the importance of this, the risk of cover failing to meet losses increases.

Rising valuations in most cases mean rising premiums, but none of us can afford to dodge those difficult conversations needed to ensure clients are adequately protected, with wordings under increased scrutiny and soft coverages and associated costs more likely to be restricted or excluded.

Business interruption coverage – learning the lessons from Covid

The rise in inflation stems in large part from rising energy costs, exacerbated by the situation in Ukraine. And the energy crisis is bringing with it further risks for the industry and its clients. In some leading economies, talk has already turned to the possibility of energy rationing.

As well as having a direct impact on a clients’ business, restrictions on energy use will have unpredictable consequences across supply chains.

Once again, business interruption coverage becomes a major factor. The Covid crisis saw business interruption claims become the subject of regulatory interventions and legal challenges, all of which should have been a wake-up call.

Preparing for the possibility of interruptions due to energy rationing should be one of the priorities and brokers will need to identify the best solutions with carriers that provide the broadest coverage in the event of a failure of third-party utility services.

Lessons from the past point yet again to clients being heavily dependent upon their brokers for guidance to navigate these issues, as the industry comes together to deal with these challenges and avoid any further hits to its credibility. Brokers across the chain from the direct side all the way to facultative reinsurance have a role to play.

Uncertain times call for an experienced hand

The current state of the global economy, geopolitics and, of course, the rising incidence of catastrophe claims stemming from climate change effects have made the world a more uncertain and fragile environment.

To serve clients effectively, brokers must be more than just transactional agents. Pricing matters, but it is only part of the equation. To succeed, we must be providing a more sophisticated service, underpinned by data-driven technology.

This is a particular challenge given recent history. An extended soft market period means the currently hardening prices are a new experience for many clients and indeed for younger professionals in our industry. Addressing the challenges, particularly inflation, requires innovative responses. It also requires professionals with significant experience.

“To serve clients effectively, brokers must be more than just transactional agents”

At Acrisure Re, our most senior executives are intimately involved in day-to-day activities – in guiding and advising clients. All executives must get comfortable with using technology and data because the issues we face require detailed and complex analysis of risks, both scientific and economic.

Sadly, (at time of publication) the conflict in Ukraine shows little sign of resolution in the near future. The uncertainty will continue, coupled with the ongoing inflationary risks to valuations, premiums and claims in parallel to the continuous threat of disruption to business operations and supply chains.

Our industry’s role, across the spectrum, is to help clients prepare for that uncertainty – indeed this is the very essence of our existence. More than ever, we need to support our clients, not just with short-term pricing solutions, but with a holistic view of their businesses to help mitigate, manage and provide the right solutions, bringing to bear past experiences.

We face economic challenges unseen for a generation. Now our industry has an opportunity to show its mettle and demonstrate the essential value we can provide.

Ghassan Mansour is head of international facultative reinsurance at Acrisure Re