The re/insurance implications of geoeconomic fragmentation – Geneva Association webinar

The Geneva Association hosted webinar titled “Trade Wars, Decoupling, and Insurance: Navigating an Uncertain Global Economy”, focused on the impact of escalating geopolitical tensions and economic decoupling on the insurance industry.

Discussion included three potential scenarios of geoeconomic fragmentation—continued regionalisation, escalating trade wars, and full-scale economic bifurcation—and their direct consequences for insurers.

These three scenarios came from a recent paper by the Geneva Association, “Insurance in a fragmented world economy”, published in January.

The Geneva Association webinar itself can be listened to in full via YouTube, here.

Towards fragmentation

The global landscape has been markedly altered by events such as the US-China trade conflict, the COVID-19 pandemic, and the Russia-Ukraine war, panellists emphasised.

Kai-Uwe Schanz, director of macro and geoeconomic shifts at the Geneva Association, emphasised this transition

“Geoeconomic fragmentation signals a shift toward national security and resilience over economic efficiency, disrupting free trade and globally integrated supply chains,” he said.

Insurance implications

Protectionism and economic decoupling present multifaceted challenges for the insurance sector, panellists argued.

The first is operational complexity. Diverging regulations across regions can complicate compliance and operational strategies for insurers operating in multiple jurisdictions.

There is also a fundamental threat to the business model of re/insurers due to risk diversification constraints imposed by protectionism and fragmentation.

This is because reduced global integration limits opportunities for risk diversification in underwriting and investment portfolios, potentially increasing exposure to localized economic downturns.

Emerging risk exposures were also emphasised.

The fragmentation heightens exposure to risks such as political instability, supply chain disruptions, and cybersecurity threats, necessitating a re-evaluation of existing risk models.

Miguel Barroso Abecasis, executive board member at Fidelidade, highlighted the operational challenges.

“Navigating a fragmented regulatory environment requires insurers to be agile and adaptable, ensuring compliance while maintaining efficiency,” he said.

Strategic responses

Despite these challenges, the evolving landscape offers avenues for growth and innovation:

Political risk insurance was highlighted as one area of “increased demand” amid a more volatile geopolitical trading era.

As companies navigate uncertain geopolitical terrains, demand for coverage against political risks is expected to increase, including its core purposes of protection against risks of asset expropriation, currency inconvertibility, and political violence.

Renewable energy investments were also highlighted. The global push for energy independence and sustainability is seen to be opening up opportunities for insurers to underwrite and invest in renewable energy projects.

Localised product development was also emphasised. Insurers operating in the new environment can develop tailored products that address specific regional risks and the needs of local markets.

“Insurers that proactively adapt to regional nuances and invest in understanding local markets will be better positioned to capitalize on emerging opportunities,” added Kweilin Ellingrud, senior partner and director, McKinsey Global Institute.

Technology’s role

Technological advancements are expected to play a crucial role in enabling insurers to navigate the complexities of a fragmented global economy.

Data analytics, artificial intelligence, and blockchain can enhance risk assessment, streamline operations, and ensure compliance across diverse regulatory environments.

Runhuan Feng, chair professor at Tsinghua University’s School of Economics and Management, emphasized the importance of technology.

“Leveraging technology is not just an option but a necessity for insurers aiming to thrive amid geopolitical and economic shifts,” he added.