Carolina Klint, Risk Management Leader, Continental Europe at Marsh, believes that businesses face a wide range of risks, but that they cannot lose sight of the longer-term threats.
“2023 is set to be marked by increased risks related to food, energy, raw materials and cyber security, causing further disruption to global supply chains and impacting investment decisions,” she says. “At a time when countries and organisations should be stepping up resilience efforts, economic headwinds will constrain their ability to do so. Faced with the most difficult geo-economic conditions in a generation, companies should focus not just on navigating near-term concerns but also on developing strategies that will position them well for longer-term risks and structural change.”
Worryingly, Klint says the list of crises for businesses is growing.
“Navigating the cost of living crisis is seen as pressing, but it is compounded by lack of access to raw materials and components due to concerns over the security of the supply chain,” she adds. “We are seeing a rising threat to food security, and no country is immune to the issue as the war in Ukraine has impacted the world’s food supply. It also raises the threat of civil disturbance and creates further complexity in the supply chain.”
On the rising risks of political violence as the cost of living and price inflation bites, Klint believes governments need to act but cannot ignore the broader systemic threats faced by the world. “It is about restoring trust in the system of government with the public,” she explains. “However, it is not easy as governments across the world face a number of risks. There are things that governments can do to mitigate the cost of living, but that may come with the threat of losing sight of longer-term risks.”
Klint says the sanctions imposed on Russia have also impacted the supply chain and we are increasingly seeing a move by businesses from a ‘just in time’ approach to a ‘just in case’ approach.
“There is a growing trend towards near-shoring and stockpiling, which is having an effect on the availability of materials. It is also increasing warehousing costs,” she continues. “Businesses are looking to localise their supply chains to reduce the impact of the current pressure, but we are also seeing companies acquire suppliers to secure provision. This vertical integration is set to continue as corporates seek to gain better control of their supply chains.”
The energy crisis also remains a current and likely continuing threat to nations and business, Klint adds: “The access to affordable energy remains a real concern for businesses with the Russian invasion of Ukraine affecting energy supplies and we have some countries looking towards coal in order to find a short-term solution.”
“But we cannot solve the energy crisis by next winter. It might take maybe five years, and we also have the threat of extreme summer temperatures, which will add to the risks faced by businesses, and the need for increased demand for energy.”
While the insurance industry can help support their clients, currently there is also a responsibility to be aware and alert to the emerging challenges.
“We need to take a step back and take a long-term holistic view of the risk horizon. If we work together, we can respond to these risks and secure our long term future,” Klint explains. “Resilience is key to the future with the threat from ongoing climate change only set to increase. For businesses, insurance will play a huge part, but they have to ensure their valuations are up to date. We do not want to be in a position where the industry does not respond due to valuations being inadequate.”
For Klint, the concern remains the threat that seeking to firefight current risks comes with a failure to build resilience to those threats that are yet to come.
“It is human to look at what is in front of you and not learn the lessons of the past. As a risk professional, I am always concerned about the risks we have not recognised” she concludes.
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