A View From Me on ‘23 – Communication will be key to ensure resilience

Nadia Côté, managing director, Regional Unit London & Nordics, Allianz Global Corporate & Specialty, explains the challenges ahead will require co-operation from all in the insurance transactional chain.

Following a year of global economic uncertainty, war, unprecedented cyber-attacks, ongoing business interruption and supply chain disruption, as well as natural catastrophe activity, what can the Insurance industry expect from the risk landscape in 2023?

Cyber risk topped the Allianz Risk Barometer in 2022 – our annual survey of the most important business risks based on the insight of over 2,600 risk management experts in close to 90 countries.  Allianz Global Corporate & Specialty (AGCS) experts expect this to be the same in 2023 driven by the recent surge in ransomware attacks that will remain a top cyber risk for businesses over the next year – but new cyber threats are also emerging.

The sophistication and frequency of business email compromise attacks is increasing, and other worrying cyber risk trends to watch include: a heightened risk of state-sponsored attacks, the evolving third party liability landscape, a shortage of cyber security professionals, and cyber governance being under increasing Environmental, Social & Governance (ESG) scrutiny.

It is not just cyber security that is a key concern in the ESG arena either.  There are other risk topics to watch as governments and citizens exert pressure on business to change their ways for the greater good.

Extreme weather events have changed the perception of climate change from an abstract peril to an everyday risk. There is rising activist and societal pressure on governments and businesses to address this. Diversity issues are growing in prominence and businesses are coming under increasing scrutiny. With changes in regulation and legislation on diversity increasingly likely, D&O litigation risk could increase further still.  Meanwhile, concerns about ‘greenwashing’ grow as the pressure on businesses to improve their carbon credentials mounts.  With legal action by stakeholders and investors in this area on the rise, directors should be wary of setting unrealistic ESG targets they might fall short of or they could become the subject of litigation.

Inflation will doubtless continue to  impact businesses in many ways next year.  Within the insurance industry inflationary trends such as the rising cost of construction materials –   are ensuring that claims are becoming more expensive – with replacement costing more and taking longer.  So the undervaluation of assets is a key concern for both insurers and policyholders.  AGCS is working intensively with clients and brokers prior to and at renewal stage to build awareness and preparedness for updating asset values.

Concurrently, the energy crisis could mean a massive profitability shock for many firms, which governments can only partially offset. Many companies, particularly smaller enterprises, could still see a large chunk of their profits being wiped out, with any blackout scenarios being particularly costly.

Supply chain disruptions are no longer the exception but the rule, and business interruption (BI) will remain a significant risk in 2023.  We are seeing a growing willingness from top management to bring more transparency to supply chains and rethink previous supply strategies. Companies are investing in tools and working with data to better understand risks, build inventory or buffers and redundancies, and create business continuity contingency plans. Getting out of supply chain problems is becoming a success factor. However, companies’ growing reliance on technology and digitalization is likely to be a big challenge for BI going forward as cyber is still not as well understood as traditional BI triggers such as natural catastrophes or fire, therefore mitigations are not as well developed.

At AGCS many of our clients are seeking bespoke solutions for an increasing array of risk scenarios, from traditional such as BI and supply chain issues, to non-traditional including sustainability-related risks.  We anticipate the demand for Alternative Risk Transfer to continue to grow in 2023 and beyond.  While many corporate risks can be covered through the Property & Casualty insurance market with traditional products, in the current market environment more companies are looking beyond traditional risk transfer and exploring the use of higher retentions, self-insurance programs or other forms of risk financing.

More than ever it is clear that risk managers, brokers and insurers all need to stay in close dialogue to work together to strengthen business resilience. After all, resilience will increasingly represent a competitive advantage in an ever-increasingly uncertain world.