A View From Me on ’23 – The risks are not new but magnitude is a challenge

Steven Wallace, Deputy President of CILA and MD of McLarens UK & Ireland says he is confident that the year ahead will see the industry evolve and adapt to meet the challenges of a changing risk landscape.

Much is made of the insurance industry’s ability to spot and mitigate emerging risks. It’s one thing to react to and manage today’s risks, but insurance buyers are always looking to the future, seeking to protect themselves against the emerging risks facing their business.  And these buyers currently face a host of risks – climate change, choked supply chains, cyber warfare, the pandemic, rampant inflation, a looming recession, European war, social unrest and growing geo-political tensions.

Though daunting as this list is, many of these risks aren’t new, but have always been with us, and the insurance market and the loss adjusting profession has always managed them.  What is new, is the magnitude of what we are facing and the way that risks are converging. Even more unique is the interconnected nature of it all – none of these risks can be approached or managed in isolation. To tackle one, is to tackle all.

Look at it this way. The pandemic had a direct impact upon supply chains, the choking of which has contributed to inflation across the globe. This inflation and the cost of meeting the challenges of the pandemic is driving many economies towards a recession, which in turn has contributed to increasing social unrest. The war in Ukraine has exacerbated the existing supply chain problems, inflation and geo-political tensions and of course, climate change has the potential to inflame all of these issues and even eclipse them in severity.

However an organisation chooses to approach these risks, I’m confident the insurance industry and the adjusting profession that supports it, will find new and innovative ways to help their clients manage these risks and the claims which emerge from it. We’ll find a way because we always do – the loss adjusting profession has demonstrated time and time again its ability to step up and find solutions.  It can do this because of its unique ability to combine its multi-skilled, multi-lingual global resources with a ‘can-do’ resourceful mentality, always adapting to the ever-changing world.

No one would have envisaged what has been thrown at us over the last three years. From a prolonged global lockdown, to subsequent economic challenges, followed by the horror of the Ukraine conflict and its political, economic and insurance ramifications.  Every situation throws up new challenges to which there will always be a need for solutions, whether it relate to coverage or a claims response, there is a deep skill base and vast experience to draw upon.

So from a technical perspective, I have no concerns that the insurance industry will be able to cope with all these risks, even cyber warfare and transitioning to green energy which is now accelerating at pace. But what is front of mind is the increase in the number of surge events and, increasingly, their severity and nature.

When we talk about catastrophe or surge events, it’s usually weather events which can trigger a huge volume of claims. The adjusting profession is highly experienced and has a proven track record in managing weather related events, so despite the inevitable increase which climate change will bring about, I am confident that the insurance industry and adjusting profession are well equipped to respond, arguably better than ever before, with alternative products and slicker processes augmented with a greater degree of digital sophistication.

But surge events are taking on a new form. Take the covid 19 business interruption (BI) situation as the most recent example. Out of nowhere, in the middle of a devastating pandemic, the insurance industry experienced a surge of claims for a trigger that few had envisaged. It wasn’t just the volume of claims, it was the complexity and coverage uncertainty which tested the industry like never before

It was a unique set of circumstances as the industry grappled with the challenge of interpretating the Supreme Court Judgement across the many different policy wordings in play, and indeed in managing the considerable public pressure which accompanied the tens of thousands of claims that emerged.  But despite the complexity and scale of the event, the loss adjusting profession demonstrated again its ability to react to the unexpected, combining expertise, resource and innovation to support the insurance industry in the handling and settlement of an unprecedent number of claims.

It doesn’t take a visionary to see that cyber poses a real threat in this respect – could we experience an attack that spreads throughout the world’s IT infrastructure like Covid surged through nations? What risks lies ahead from the accelerated transition to natural and alternative energy sources?

The insurance industry will evolve to manage our changing world and risk landscape and chartered adjusting firms will adapt to ensure that they carry the right resource to properly respond to whatever lies ahead.