The global economy is a maze of interconnected business relationships supporting the successful flow of trade around the world. This has enabled frictionless trade but has also created contagion paths that expose the same trade to connected risk, as trade, risk and exposure are truly borderless.

As a result, the frequency and severity of events with an interconnected nature are rising, leading to companies facing direct and indirect exposure to disruption. This has led to rising balance sheet vulnerability, as insurance does not cover all event exposure. This hampers risk taking (as risk appetite is squeezed), thus stifling opportunity.

Marine (re)insurers execute a vital role in the flow of global trade and will play their part in the recovery of the global economy. In this era of complexity, we need to protect the flow of trade with more comprehensive outcome-based insurance.

The Russia-Ukraine conflict brings into focus the correlation between marine, credit and other lines of insurance business. With the changing world order leading to potential flashpoints, (re) insurance management needs to understand how credit may be correlated with other lines of business. 

Marine (re)insurance is directly impacted by downturns in trading countries or transit routes like the Sea of Azov or the Strait of Malacca. $3.5tr of global trade reportedly passes through the Strait of Malacca and across the South China Sea annually, including 67% of China's maritime trade volume, 40% of Japan's maritime trade and 33% of global trade.

These trade flows include 15m barrels of oil daily and 33% of the world's liquefied natural gas to China and Japan. Furthermore, a Chinese incursion in Taiwan would have severe impacts on the global economy, and hence to marine (re)insurers, through sanctions and disrupted trade.

 

These scenarios illustrate that industry needs more outcome-based solutions to protect the flow of trade.

Readers of IUMI Eye can download an exclusive copy of a new Russell White Paper: “The Need to Develop Connected Outcome-based Solutions for Marine, Credit and Political Risks”. This can be downloaded here.