Why insurance will matter even more in 2022

As 2021 draws to a close it’s time to take stock and take a view ahead with what we can expect during 2022.

Now I always enjoy reading the annual predictions from the seer of all the seers Nigel Walsh, so rather than making specific bets, will instead look to consider what lays ahead for key insurance “megatrends”.

The thesis being that “insurance will matter even more in 2022”.?As businesses and individuals have grappled with calamities over the last two years they became more risk-aware, hence seeking help.?As Julie Page, CII President commented on in the CII Journal about the insurance profession “staying relevant”.?

I observe the following 4 insurance “megatrends”, characterised by rapidly increasing, often systemic, risk exposure where current solutions are inadequate or falling behind.?It is up to the insurance and broader risk management professions to help manage and transfer these risks:

1. Pandemic

In 2021 the Business Interruption insurance test case grabbed the headlines and has seriously dented the insurance sector’s reputation.?Contrary to popular expectations, insurers were not able to pay unlimited sums and underwrite spur-of-the-moment government policies.

Yet there is hope!?The government-backed “Live Events reinsurance scheme” was relentlessly pursued by a handful of insurance professionals.?The ￡750m government backstop is tiny compared to other pandemic programmes, yet it unlocked the commercial event insurance market.

“With this new insurance scheme, everything from live music in Margate to business events in Birmingham can go ahead with confidence, providing a boost to the economy and protecting livelihoods through our Plan for Jobs.” The Chancellor of the Exchequer, Rishi Sunak said in August 2021.

Elsewhere Pool Re, the hugely successful terrorism pool, led by Julian Enoizi, is another great example of the benefit of private-public partnerships in managing systemic risks.

So, we can expect more private-public insurance partnerships in 2022 to help the society and the economy in the aftermath of the pandemic.

2. Climate

2021 has also been the year when climate risk moved from fringe to the centre of attention with COP26 grabbing the headlines.?The 2021 European floods or the West Coast wildfires brought climate risk to many people’s doorsteps.

During 2021 I wrote a series of articles about “Ensuring Sustainable Future”?[https://www.dhirubhai.net/posts/wishman_ipcc-insurance-esg-activity-6833378050554515456-JVps] and in particular insurance sector’s role in it.?Also citing the positive 3-volume Lloyd’s report “Insuring a Sustainable, Greener Future” sponsored by Bruce Carnegie-Brown.

We can expect more insurance-sector-led initiatives through 2022 with tangible steps towards net-zero and importantly measuring impact of these initiatives. There is rapidly growing expectation – from investors, employees and customers alike – that companies ‘walk the talk’ with transparent (key success factor) measurements and avoid any allegations of "greenwashing"

3. Cyber

2021 was also the year when “ransomware” entered popular vocabulary.?The attacks on Colonial Pipeline Co., JBS meat packing, or Ireland's Health Service brought cyber risk now to many people’s doorsteps.?At the same time supply-chain attacks on Solar Winds or Microsoft Exchange Server brought to light how big the aggregation risks might be.?Not surprisingly all reinsurers reduced their aggregate limits.?For an average business cyber insurance is now more difficult to buy with reducing limits, new sub-limits for ransomware, and vastly increased price.

This is a topic of great interest and indeed a corner stone for CGI, as highlighted in previous articles where considered cyber issues and solutions including; “Staying One Step Ahead of the Hackers” [https://www.dhirubhai.net/posts/wishman_cyber-technology-cybersecurity-activity-6810512722308931584-s-2C] and “Cyber Security: Is this the coming-of-age moment?” [https://www.dhirubhai.net/posts/wishman_cybersecurity-data-insurance-activity-6745357807198990336-osEd].

Sadly, it is not difficult to predict that there will be more attacks in 2022.?Conversely there's also cause for optimism as cyber threats have made business and consumers more risk aware, vigilant, and taking necessary steps to protect themselves.?Additionally, law enforcement, including UK Police is becoming stronger and looking after small businesses not just the large ones [Simon Newman, (33) Police Crime Prevention Initiatives: Overview | LinkedIn].

It is through the combined efforts of the cyber security sector and insurance professionals we expect to see novel cyber-protections products and services during 2022.

4. Intangible assets

2021, and 2020 before, have seen a rapid acceleration of digital tools permeating all aspects of our lives, both social and professionals.?In 2019 some of us have tried unsuccessfully to use Skype for Business (luckily replaced by MS Teams) – now “to Zoom” has become a verb, as was “just Google it” before it.?4 out of top 5 global companies by market cap are digital assets companies.?Intangible assets constitute nearly 90% of S&P500 market value.

According to a report by Geneva Association [Digital Entrepreneurship and the Supportive Role of Insurance (genevaassociation.org)] only 20% of intangible assets are insured.?The insurance industry is very good at pricing and mitigating risks facing buildings or infrastructure but still figuring out how to price and risk-mitigate intangible assets, such as brand, reputation, data, intellectual property, software, and talent.

We can however believe in the insurance community’s entrepreneurship and innovation, as cited in the Lloyd’s/KPMG report, which provides good guidance [Lloyd’s protecting intangible assets - Lloyd's (lloyds.com)].?There are already specific products from Hiscox, Beazley, Markel, or TMK, to list a few.?Again, expect to see more new products and services in 2022 and the intangible asset insurance becoming much more accessible and accepted.

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No doubt, there will be other points of view, either complementary or conflicting.?I would love to hear from our friends within the insurance and tech community...

May 2022 be the prosperous year for all :)