Russia’s invasion of Ukraine and the ensuing barrage of retaliatory sanctions imposed on Russia by the Western world have created a global economic squeeze that may last for months or years.
Governments and large organisations around the world have introduced measures to isolate Russia and throw its economy into turmoil, thus hampering its war efforts in Ukraine. While sanctions are among the toughest actions nations can take, short of declaring war against Russia, these actions will have far-reaching implications for economies worldwide because of Russia’s deep integration in the global financial system and its dominance in the global energy market.
Now, countries are turning their gaze inwards to see how they can mitigate some of these global economic challenges by increasing domestic production and reducing reliance on international supply chains. This is adding to a slow process of deglobalisation, which started long before Russia’s invasion of Ukraine, and was influenced by events like the financial crisis in 2008/9, the UK’s exit from the EU in 2020, and the ongoing trade challenges triggered by the COVID-19 pandemic.
For businesses, the biggest concern is not being able to produce products or deliver services, and, for many, this concern became a reality due to pandemic-related manufacturing problems, transport bottlenecks, supply chain disruptions, and now the war in Ukraine. Recent events have made businesses worldwide consider the resiliency of their supply chains, and the possibility of ideas like onshoring operations and stockpiling inventory.
My question is: what will things like deglobalisation and more onshoring mean for the insurance industry?
Naturally, it could equate to domestic market growth. Infrastructure will be needed to support greater domestic production and supply, which means there will be opportunities to write new business across almost the entire spectrum of commercial insurance, from construction to manufacturing, workers’ compensation, commercial transportation, management liability, and more.
But then questions arise as to whether local insurance markets are adequately capitalised to handle a surge of domestic business, and equally important, whether insurers have enough human capital and distribution power to service more accounts. That second concern is interesting, given the insurance industry’s long struggle with talent acquisition, and the fact that all industries are now competing in a tight labour market resulting from COVID-19 and the so-called ‘Great Resignation’.
Deglobalisation might also require some insurers to re-shape their business portfolios. If global challenges – like the sanctions imposed on Russia and Belarus – mean insurers must stop writing business abroad, they may look to counteract that premium loss by writing more business domestically. Perhaps this will have more impact on companies with smaller international portfolios, rather than the global insurance giants, who are well-established entities in countries around the world.
I think that an insurance industry with a greater local focus will provide a lot of opportunities for smaller and medium-sized domestic insurers and regional players to really emphasise and expand upon their value propositions. Now’s the time for insurers to use their local influence, their local knowledge, and their local relationships to help businesses as they look to onshore their operations and their supply chains.
Some industries will present more opportunities than others. For example, as countries either phase out or ban Russian oil and other energy imports, many are scrambling to figure out viable alternatives, with the obvious option being to increase investment into local energy infrastructure and production. This will require significant risk transfer and insurance-related services, and opportunistic firms should recognise that and step up to provide solutions.
My point is, while the sanctions on Russia are disrupting a global economy that was already under significant strain, opportunities could arise out of this for insurance companies that are agile, well-capitalised, and have a skilled workforce that is able to tackle the unique challenges of the day.