In the year ahead, insurance carriers and their customers will operate in a geopolitical landscape that is much more unstable than anyone thought it would be 12 or 24 months ago. Inflation, catastrophic weather and war have exacerbated the lingering challenges of the COVID-19 crisis, supply chain disruptions and labor market challenges. What can the past year’s risks tell us about the 2023 landscape of risk and opportunity? Zurich North America’s Paul Lavelle, Head of U.S. National Accounts, and Alex Wells, Head of U.S. Middle Market, share their insights.
Managing energy impacts
The Russian invasion of Ukraine has created not only a humanitarian crisis, but has impacted global economies in several key ways. The first concerns energy and the environment. Russia is one of the largest oil exporters, and its natural gas fuels the European economy. The war has prompted leaders to rethink their energy strategies. “How do you heat Europe when the usual supply of natural gas is not going to be available?” Lavelle asked. “Do we see people converting to coal? What does that do to emissions reduction goals that companies have set with 2025 or 2030 deadlines?”
The conflict has also intensified supply chain challenges, specifically for raw materials needed to manufacture electric cars. This has a direct effect on states’ goals to reduce reliance on gas-powered vehicles.
The lesson? In short, diversify. This applies to sources, types and origins of energy as well as other critical supplies, Lavelle and Wells said. Business continuity management is an essential part of preparing for extraordinary situations; Zurich risk engineers can help.
The war also has intensified cybersecurity concerns. From an insurance perspective, cyber exposure has grown as a result of the Russia/Ukraine war. Russia has been implicated in previous cyberattacks against Ukraine that damaged infrastructure and data. Now fears of Russian-backed cybercrime have spread to all countries supporting Ukraine.
This uncertainty could fuel further change in cyber insurance policies, which by virtue of their youth were already subject to change. “The policies that exist now continue to evolve at a rate and a pace that is different than every other product line,” Wells said. “The definitions in cyber policies from 10 years ago are totally different now. And in three more years they will be different again.”
For companies that insure cyber, the challenge is to help bridge gaps in cyber risk awareness and resilience. Carrying a cyber policy is only part of the solution. Businesses must take additional steps to shore up their cyber defenses; one is to increase employee training. There also needs to be additional private-public partnership to address the implications of large-scale cyberattacks on businesses.
Enhancing use of data
The application of data in insurance is becoming more refined, and the timing could not be better. Between inflation and the current rate environment, businesses are keenly attentive to managing total cost of risk, and they are discerning about the service they receive. Leveraging data and technology is helping carriers with more accurate rate quoting, more efficient binding and improved service. Powering those improvements is the trend toward insurance companies hiring true data scientists.
“I think the bar is being raised,” Lavelle said. “Now we have internal teams as big as some consulting firms working toward making the company better at mining data, doing it firsthand, and turning it around in weeks and months as opposed to quarters and years. That is an enormous game changer.”
Having data scientists on staff is also enabling carriers to customize technology offerings from vendors to enable them to address specific gaps and opportunities for their customers, Lavelle and Wells said.
“We don’t have to go to one vendor and say, ‘give us your system,’” Wells said. “We go to 10 vendors and take a little bit from each one and then take the data we have and pull it all together into a more simplified underwriting platform. We expect to see tremendous growth over the next five years in the ability to push the right information to the right point in the decision-making process, all without taking five years to build some type of front-end system that will be obsolete by the time any underwriter actually gets it.”
Developing specialists in emerging fields
One way Zurich is addressing risks is by developing and upskilling staff on emerging issues, bringing in experts with specialized knowledge and empowering innovative thinking. “Whether it is climate, renewable energy or cyber, we’re investing in getting our arms around all the potential exposures,” Lavelle said. “Not just the ones we see today, but ones that could play out in the future.”
He cited the resources that a large, global carrier can bring to bear. “Zurich has both size and stability, a lot of internal experts, and a lot of investment in very broad categories,” he said.
Beyond size, Zurich’s longevity speaks to an ability to adapt, evolve and listen. “We’re celebrating our 150th year in existence,” Wells said. “We are a very dedicated type of underwriting organization with an ability to help our customers from risk control through post-event services and claims payments. We build our solutions around a depth of understanding of our customers. We build specializations within construction, technology, financial institutions, etc., where we have a deep understanding of the specific issues they face. And then we are able to connect all of those dots for our customers in a way that puts them in a better situation than they would be by just buying a promise to pay a loss at some point in the future.”
A version of this article originally appeared in the November/December 2022 issue of Risk Management (RIMS) Magazine.