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Certainty in uncertain times

As we gather at the 2024 Airmic conference this week in Edinburgh, the risk landscape has never been more complex and interconnected. In these turbulent times of geopolitical, economic and climate tensions, what does the ever-evolving nature of risk mean for the insurance industry?

We know from the Allianz Risk Barometer – an annual survey that asks more than 3,000 risk management experts around the world to identify their top business challenges for the year ahead – that cyber risks remained the biggest concern for companies globally this year, closely followed by the interlinked perils of business interruption and natural catastrophes.

While UK respondents echoed the global consensus, with cyber risk leading the list of top business concerns, sentiment has also shifted on macroeconomic developments, with the percentage of UK respondents listing this as a leading concern declining from 34% to 18% year on year, falling further than the global average (down from 25% to 19%). This ensured it dropped from third position in the UK rankings to seventh.

Instead, other risks have risen to the fore this year. The shortage of skilled workers now ranks fourth highest, with a fifth of UK respondents (21%) citing this as a major concern – compared with the global average of 12%. UK businesses also expressed heightened concern about political risks and violence, with 19% of respondents (13% in 2023) troubled by the geopolitical environment, compared with 14% globally, ensuring this peril became a top five UK concern for the first time. Risks posed by new technologies are also a leading preoccupation for 18% of UK respondents (as opposed to just 9% globally), again an increase on the 2023 response (11%), ranking joint seventh.

With the ongoing conflicts in the Middle East and Ukraine, it’s understandable that businesses are less assured about the volatile geopolitical environment, which is becoming an increasing source of risk for supply chains and international trade, as demonstrated by the recent disruption in the Red Sea – a vital trade route between Europe and Asia. At the same time, the UK political environment contains a degree of uncertainty with the pending election, part of this record-breaking year around the world that will see as much as 50% of the world’s population going to the polls.

A more pressing concern for businesses will be operational issues driven by a shortage of skilled employees, the challenge of getting to grips with exponential growth in the use of artificial intelligence (AI) tools, and regulatory changes that could increase the risk to directors and officers (D&Os) of legal challenges.

As businesses see the potential for substantial time and cost savings through automating less skilled tasks, they are also facing increasing difficulty in recruiting and retaining skilled employees due to intense competition for talent. The search for IT or data experts is particularly challenging, highlighting the critical role of this issue in combating cybercrime.

The growth of AI means companies may have to invest heavily in the short term: on in-house or third-party AI solutions; training and education for employees on their use; advice on navigating an increasingly complex legal and regulatory environment; and risk assessment of the potential for biased, inaccurate or plagiarised AI outputs – as well as data privacy issues and increased vulnerability to cyberattacks.

Additionally, companies will need to invest in risk management and financing solutions to better assess and mitigate their changing risk profile and to protect D&Os against increased exposure to the legal and regulatory risks associated with new technologies and a changing working and business environment.

At Allianz Commercial, many of our clients seek bespoke solutions for an increasing array of risk scenarios, from traditional such as BI and supply chain issues, to non-traditional including technology and sustainability-related risks. We anticipate the demand for alternative risk transfer to continue to grow. While many corporate risks can be covered through the property and casualty insurance market, in the current environment more companies are looking beyond traditional risk transfer and exploring the use of customised multi-year and multi-line contracts, including supporting captive insurance programs with fronting or reinsurance.

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. Airmic provides a great setting for this and everyone from the Allianz Commercial team is delighted to be here again and continue our partnership. Resilience will increasingly represent a competitive advantage and some certainty in an ever-increasingly uncertain world.

Nadia Côté, managing director for the UK, Allianz Commercial will appear on the closing panel session at Airmic: ‘Underwriting the Future – The Roads to Relevance’ Wednesday 5 June at 12-12:45pm.  Allianz will also lead the Captive panel, Tuesday 4 June at 14:15-15:15.

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