In the Canadian market, which is deeply interwoven into the global economy, the biggest question facing the insurance industry in 2023 is not necessarily inflationary pressure or market capacity — it’s how the industry can continue to fulfill its function as a core pillar of a resilient society in the face of rapid and unexpected geopolitical change.
Russia’s invasion of Ukraine is a tragic example of that kind of change. In addition to the devastating human costs, the war has caused a reordering of political, economic and social priorities around the world, and sparked risks ranging from supply chain disruption to cyber-attacks.
In the future, an increasingly unpredictable geopolitical stage will intersect with growing global dependency on digital infrastructure, supply chains highly exposed to geopolitical risk, and existential risks.
Examples of existential risks include widespread cyberattacks or disruptions, severe weather events that cause longer-term disruptions, food and water crises, economic stagnation and infectious disease outbreaks.
Insurers and other market participants will have to adjust quickly to new roles as clients find their footing in a constantly shifting operating environment. These new roles will likely include helping companies to de-risk supply chains, fostering improved data stewardship and threat monitoring across high-risk areas.
Insurers will need to design new and innovative products to provide cover for seemingly uninsurable systemic risks. Today, a single geopolitical event has the potential to cause loss across multiple lines of business.
This is not the first time the industry has overcome such a challenge. For example, the initial reaction of many insurance companies after the Sept. 11, 2001 attacks in the U.S. was to deem terrorism ‘uninsurable,’ in part because a lack of data at the time made it difficult to predict future losses.
Times have changed. Economic trade linkages have made geopolitical risk systemic. Data is the solution to insure such interrelated risks. Specifically, insurers must work with policyholders to share secure flows of information to help identify accumulating risk and loss potential.
Systemic risk is not universal risk: the impact of geopolitical risks falls unevenly across companies and sectors. To properly serve customers across this risk spectrum, our industry needs to rapidly scale up its ability to deploy data effectively to identify likely winners and losers from specific event types. Crucially, we must offer products and services to build resilience for customers, businesses and governments where it’s needed most.