As we enter 2022 I think now is the perfect time to look ahead to what is sure to be an exciting and positive year, and also reflect on some of the lessons 2021 taught us.
I always enjoy reading the annual predictions from the seer of all the seers Nigel Walsh, so rather than making specific bets, I will instead look to consider what lays ahead in 2022 for key insurance “megatrends”.
The thesis is that insurance will “matter even more” this year. As businesses and individuals have grappled with so many unexpected calamities over the past two years, they have become more risk-aware, and as a consequence have been seeking more help. 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:
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 still managed to unlock 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 this year to help society and the economy in the aftermath of the pandemic.
I think we can expect more insurance-sector-led initiatives through 2022 with tangible steps towards net-zero and more importantly measuring the 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". As we saw in 2021, climate risk moved from fringe to the centre of attention with COP26 grabbing the headlines. The 2021 European floods and the West Coast wildfires brought the issue of climate risk to many people’s doorsteps.
Looking briefly back at 2021, this was the year when “ransomware” entered popular vocabulary. The attacks on Colonial Pipeline Co., JBS meat packing, or Ireland's Health Service brought conversations around cyber risk to the public lexicon. 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.*
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 take necessary steps to protect themselves. Additionally, law enforcement (including the UK Police) is becoming stronger and are actively looking after small businesses as opposed to only the large ones as we have seen previously (Simon Newman, Police Crime Prevention Initiatives).
It is through the combined efforts of the cyber security sector and insurance professionals that we expect to see novel cyber-protections products and services during 2022.
4. Intangible assets
There is no avoiding the fact that 2021 (and 2020 before it) saw the rapid acceleration of digital tools permeating all aspects of our lives, both social and professional. In 2019, some of us tried (unsuccessfully!) to use Skype for Business (luckily this was quickly replaced by MS Teams) – now “to Zoom” has become a verb, as was “just Google it” before it. 4 out of the 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 is still figuring out how to price and risk-mitigate intangible assets; things like 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). There are already specific products from Hiscox, Beazley, Markel, or TMK, to list a few. Again, I expect to see more new products and services this year and intangible asset insurance becoming much more accessible and accepted.
No doubt some of you reading this will have views about my predictions for the upcoming year, be they complementary or conflicting. I would love to hear from our friends within the insurance and tech community to see what you think – please reach out to me directly.
May 2022 be a prosperous year for all!
*This is a topic of great interest and indeed a corner stone for CGI, as highlighted in previous articles where I’ve considered cyber issues and solutions including; “Staying One Step Ahead of the Hackers” and “Cyber Security: Is this the coming-of-age moment?”.