Fresh from emerging from a global pandemic, Canada’s P&C insurance industry is turning its mind toward the next item on its global risks list – the threat of an economic recession.
Global economic recession topped the list of potential 2023 risks, according to 56% of more than 240 people who attended Canadian Underwriter‘s webinar last week.
Webinar panelists listed a number of 2022 risks – notably war, oil price shocks, inflation, and supply chain issues – are all shaping up to bring the global economy to a halt next year.
“The risks we’re seeing globally, and here in Canada, don’t just come in isolation,” webinar panelist Colette Taylor observed.
“[It’s not like Canadian P&C insurers] just have to deal with inflation, or we just have to deal with cyber risk,” said the chief operating officer of Sovereign Insurance. “No, it’s all kind of convergence, and there’s a knock-on effect that happens.
“And so, as insurance companies, just like manufacturing companies, or transportation companies, everybody needs to develop an awareness around how all of these risks coincide and feed into each other…we’re developing some comprehensive risk management strategies along the way.”
What makes the task challenging is that events happening now are unlike historical examples. For example, for various reasons, today’s high inflation may not be easily addressed through economic levers that can be pulled by central banks or government policy makers, observed webinar panelist Alister Campbell, president and CEO of the Property and Casualty Compensation Corporation (PACICC).
“We have had extraordinary monetary interventions by the central banks of the world to try and mitigate the risks of global depression from a global pandemic,” Campbell explained. “And on top of that, we stacked massive fiscal stimulus throughout the western world. And Canada was certainly all-in for that strategy. So, you would expect that there would be some inflationary consequences from that much money circulating through the system.”
But inflationary pressures in 2022 are not caused by monetary policy alone. That makes this situation unique, Campbell continued.
“We’re getting supply chain pressures that are creating inflationary impacts that are not directly correlated with money supply. We’re getting oil shocks, which are incredibly unpleasant, and you have sanctions, which are suddenly creating changes in costs for certain inputs, depending on where they are getting made and shipped. And so, the combination of all those things [is] significant.
“We at least have a textbook for [dealing with inflation]. With the pandemic, we were all making it up as we went along. But for inflation, there’s a textbook: It starts by describing just how scary it is to be an insurance company.”
For Sonia Kundi, chief risk officer at Zurich Canada, geopolitics (Russia’s war in Ukraine, and the subsequent oil and economic sanctions) play a big role in the inflationary pressures for commercial insurers and their clients right now.
“The cost of oil is driving up the price of pretty much everything that we are currently buying as consumers,” she said. “From an insurance perspective, when claims come in, the replacement values are now much higher than they were previously. And this can result in people being underinsured.
“So, we were trying to work hard with our customers to ensure that they’re putting in place the resilience that they can for their businesses.”
The same goes for supply chains, she added.
“It’s really challenging to try and understand how you can mitigate those, and how you can get ahead of it,” Kundi said. “And I think organizations have to be conducting almost regular risk assessments [with] their suppliers to understand, ‘Okay, what’s the impact on my business if we’re not able to deliver on time? Or if there’s a delay? Or if they’re just not able to produce whatever it is they’re producing for you?
“You look at your supply chain more holistically.”