Maximum Exposure – talking Emerging Risks: Episode 6

Welcome to the latest episode of Maximum Exposure – The Emerging Risks podcast.

As global supply chains come under increasing pressure Luke Baker, Director UK Global & Specialty, Allianz Commercial and Danny Stock, Head of Property, Allianz Commercial join Jon Guy to discuss the new threats and how businesses can enhance resilience.

Thank you for listening to Maximum exposure – talking emerging risks, a new series of podcasts brought to you by emergingrisks.co.uk

We are a dedicated publication looking at the future of risk,

delivering insightful news and cogent analysis on the key emerging

topics facing the market in these turbulent times.

With over 150,000 impressions every month, Emerging Risks has

now established itself as the go-to read for all those concerned

with the latest analysis and trends in a dynamic and fast-moving risk environment.

Visit www.emergingrisks.co.uk

Transcript

SPEAKER_01 0:06

Hi, and welcome to the Maximum Exposure Podcast brought to you by Emerging Risk and I'm delighted to have Luke Baker and Danny Stock from Alliance with me today. And I think Danny and Luke, the supply chain has always been a sort of an issue for decades. But I think it's fair to say, um, I suppose the last year, or um, or even actually particularly I suppose the last three years um post the Russian invasion of Ukraine, there's been a real focus on on the elasticity and the strength of the global supply chain. I mean, from your two points of view, um, where do you see the current state and where do you see the the risk dynamics?

SPEAKER_03 0:47

Yeah, thanks, John. Great to be here on the on the podcast. Um, and actually probably go back a bit further than sort of two or three years ago with the with the Russian invasion of Ukraine and actually go back almost to COVID when we started to see that supply chain fragility really really change. And if you think about the extent of change geopolitically over that five or six year period now, it's a fundamentally different world to what it was pre-pandemic. We've got the pandemic, obviously, we've got Russia-Ukraine, we've got the Middle East, um, and that Middle East um situation really, really getting, I guess, worse and worse over the over the last sort of two two or three year cycle, starting with um Israel, Palestine, but then then going across into the into the current situation in Iran involving US and Israel as well. Um, and over the course of that five, six year period, it's been clearer and clearer that the risk is getting more fragmented. The risk landscape that's on board's minds is increasingly fragmented, but also interestingly for me, increasingly interconnected. So trying to navigate that from a risk management perspective and insurance management perspective is getting more and more difficult. So I think you're spot on it's been you know a decades-long challenge for our insured and for us to understand, but I think it's getting increasingly difficult for both clients to articulate where their supply chain vulnerabilities are, but also for us to help them on their journey and have that partnership approach where we're trying to really understand those vulnerabilities, tailor our policies to be fit for purpose for our clients, and also hopefully help them navigate the risks and suggest some improvements in how they can increase robustness within their own within their own supply chains.

SPEAKER_02 2:37

Yeah, I think John, just to add on that, I think I think we can probably go back even further from the Russian-Ukraine crisis and actually go back to to 2010-2011 when when the Japanese earthquake happened and a lot of uh manufacturers and suppliers then moved to Thailand, and then the aggregation of suppliers uh were sitting in Thailand and then of course then having a Thai flood. So I think I think it's been a long-term issue, and I think it will continue actually. And I think if you look at the last 15 to 16 years, it it has changed, the landscape has changed. I think if you look at companies buying, how they're trying to get efficiencies out of their supply chain, that's obviously causing issues as we navigate these geopolitical issues and and and other stuff that's been happening over that period. So I think it will change over the next 10 years as well, as we move into different technologies that with AI coming in. Uh, that there's a lots lots of different um things that we need to navigate.

SPEAKER_01 3:35

I mean, uh I suppose one of the interesting things, or well, say interesting, is there's been a lot of talk about maybe that move to sort of near shoring and sort of shifting shifting supply chains um to try and obviously circumvent some of the the choke points that we've seen in recent years. I mean, does that bring new challenges for you as well as your clients?

SPEAKER_02 3:58

Yeah, I think you know, from a from a property point of view, if I can just talk about that for a moment, is that you know, it if as companies have been trying to you know become more efficient, it has caused that issue, right? And how complex that supply chain can be. Um, but also I think that the supply chain's got even more complex if you start looking at tier two, tier three suppliers, and actually having the information to be able to underwrite and navigate your way through that as has been an issue. I mean, for me, I think clients just need to add that diversification around their supply chain. Try and stay away, if they can, from single source suppliers. I think that all adds to helping underwriters and insurers understand the risk. I think most insurers will will be willing to underwrite risk if they understand it. And I think it's just getting that level of data to understand what is the single point of suppose of failure, uh, and and then how we can sort of like try and provide solutions for that issue.

SPEAKER_03 4:56

And it's interesting as well how with the increasing level of global tariffs from different geographies now also increasing the costs within that supply chain dynamic. So I think there is something around clients wanting to have more robust supply chains in place, but also recognising there is now a cost benefit and thinking about where those supply chains, near the shoreline, wherever it might be, actually play into minimising the impact of tariffs on their, you know, on their supply chain purchases.

SPEAKER_01 5:29

I mean has that changed, you know, has that changed the you know, has that changed anything for you as underwriters on on sort of you know, has you how's the underwriting approach or had to change given the changing dynamics of the of the supply chains?

SPEAKER_02 5:45

Yeah, yeah, yeah, for sure. I think um you you mentioned near shoring. I think it's it's it's getting in the information right. So a lot of if risk managers would be looking at their actual risk, and actually sometimes it's it's looking a little bit further and outside that and looking at the procurement and looking, understanding what that supply chain looks like. Um, and and as I as I sort of said right at the start, you know, I think supply chain risks have changed and they will continue to change over the next period, really. Um, you know, uh underwriters need to understand um and try and provide solutions for what's being presented. I think I think it comes down to data more than anything, in and just trying to understand what we can provide and what the clients' risks are.

SPEAKER_03 6:30

And I think Dan, it's fair to say that pleasingly for me, the insurance industry has moved fairly effectively in helping clients. So we've got a number of different software platforms just across the industry, ourselves included, that can really help plug data in and get a get a clear view of where those dependencies are.

SPEAKER_01 6:47

Yep. I mean you you mentioned Danny, you mentioned data there. I mean, where where where will that, you know, sort of where do you where do you see that or where do you hope that data's being sourced? Is it a case of that the broker and the client now have to, you know, now have to provide more more to you, or is this a more holistic approach where obviously as a global underwriter you've got a broader, you know, you you can tap into to data from clients and and sort of expertise and modelling from around the world. So is it a case of you know, you mentioned about the data, is it a case that that data, you know, you need more data from the clients or or or how are you how are you setting about or how do you think they should set about um access to the data you need to underwrite effectively?

SPEAKER_02 7:36

Yeah, good question, John. I I think for me it's it's like a tripartite uh sort of arrangement, really. I think we all need to work together and pull in the right direction. Um, I think we talked about data and info, and I think that there's more data than there ever has been, right? Um it's around interpreting the data and understanding it, and then trying to map where these bottlenecks are and trying to understand where these exposures are. I think one of the issues that you should will have is just trying to manage their accumulations, right? But what we you know, we don't want to have a situation where you know that there's a there's a huge bottleneck or there's there's an issue where you know there's hundreds of suppliers in a particular one location and a natural catastrophe event happens, and then somebody says, How do we not know about that? I think you know, understanding the tier one, tier two suppliers and how that works, but also the mitigating factors that can be put into that. Um, we talked about supply chain, it's like you know, if there's a single source of uh issue, you know, that would be probably a more difficult risk to understand. Whereas actually if diversification within that supply chain will mitigate the dependency on that particular product or um uh that would come in.

SPEAKER_01 8:49

I think that's that's quite interesting, Danny. You mentioned um you obviously you you mentioned that around sort of the whole um issue around sort of bottleneck accumulation risk. Yeah, a lot of the anecdotal evidence that we're hearing from uh particularly a lot of the marine and energy market who are move who are transporting all these goods is that there is now this sort of there is now this move away from the you know um just in time to the just in case. Um, you know, where and they're they're saying what we're seeing is that clients are ordering and or cargo more more materials, more goods, to almost like to move from that, well, actually, just in time to actually I want it close in hand just in case we do have another bottleneck and I can't access it in time for for for my needs or my clients' needs.

SPEAKER_02 9:39

Yeah, and I think that's building resilience into that supply chain, which I think is good. I think you know COVID has most definitely had an impact around uh you know, just in time, uh, and we now have that just in case. So I think that that that that adds I suppose redundancy or more faith into that supply chain. So it's good from a from a risk perspective.

SPEAKER_01 10:01

Yeah, but I mean from an insurance perspective, to this uh you know, does it go back to your issue where now you need to be more um aware of what's coming where because you know, with more if if your clients are ordering more goods, do you just want to make sure that they're not all in the same place at the same time?

SPEAKER_02 10:18

Yeah, I mean, I think that's that that you know, most property risks do not want that. I mean, again, it just adds that you know spread. Uh, and and you know, I think as good risk management that would be looking at where you store the risks and making sure you've got that um that that like diversification really around how does where where do you store it? So do you you know what you know in Europe, US, Asia, where do you store these particular goods? So I think it does actually improve the supply chain.

SPEAKER_01 10:47

Sorry, I mean obviously with you know we we've seen a lot of change in the in the market. We as you say, we've seen new insuring, we've seen this move from just in case to just in you know from just in time to just in case. Does that change the risks that you're being asked to write, or does that change your approach as as as underwriters and insurers?

SPEAKER_02 11:07

Yeah, I I think I think it improves the risk, right? I think um uh for for sure, right? I think just in time you think around um you know an event happening, whatever that could be in a just in time scenario, and the BI impact that that could have on a particular manufacturing facility. Um, I think you know um having that resiliency or and the redundancy in that supply certainly definitely helps um the risk.

SPEAKER_01 11:34

The risks are slightly changing, and therefore, I is that being reflected in in maybe a change in the demand from the clients on what they want from you in terms of I appreciate you know you you're you're there to deliver coverage, but are they now demanding different types of advice services, you know, around resilience? I mean, are they asking more of you as insurers?

SPEAKER_03 12:00

Yeah, I think I think from my side, this this goes back almost to the style we were talking around the interconnected nature of the risks that that our clients are facing now. So we've been talking around supply chain with more of a property focus, but but of course, with the advent of AI and tech and the increasing issues in the cyberspace, that those supply chain vulnerabilities could could actually emanate from a number of different areas. So, whether that's from a cat event, the closure of the Strays of Hormuz, um, a man-made fire, or a cyber event, you can see that the interconnected nature of those kinds of events means that clients see the interconnected risks they have, and and I think for me, look to their insurance partners to make sure that they're overarching risk transfer programme, risk transfer program recognising those, recognises those degrees of interconnectedness. So in ensuring that policies are well dovetailed together to ensure there's no gaps between a cyber policy and a property policy, and a marine cargo policy and a marine hole policy. You can see how a single event or a cascade events could could impact a number of different policies, and I think our clients are certainly mapping risks in a holistic way against their overarching insurance programme just to make sure that rather than looking at risks in a monoline basis, they're looking at it across that whole that whole risk spectrum, really.

SPEAKER_01 13:29

Is that creating a um is that creating a sort of need to maybe slightly um lessen the sort of the the class drug silo nature that we've always seen in the market where you know marine and energy do their bit, property do their bit, and you know, never the twain can meet. Are we now seeing that there's there's there's a bit more fluidity between the two to ensure that, as you say, there's no no risks are falling between the cracks.

SPEAKER_03 13:55

Yeah, I mean it's a fair comment on how side we are as an industry. That's that's that's definitely fair to say. Um, but so I I think yes, I mean what one of the things we're trying to drive in with an Allianz commercial is that customer first principle. So just making sure that the customer is at the heart of our business, our decision-making principles, all the rest of it. So I think that's something we're certainly trying to drive. Um, and I think that that manifests from a customer lens perspective in that holistic view. So we we we we are trying to help clients out at a client level rather than at a line of business level, and we're certainly trying to offer multiple lines of business to our clients across really the whole spectrum of products that we have within Allianz commercial. Um, it's interesting uh as part of that kind of line of business outlook. Our ART line of business, our alternative risk transfer line is seeing more and more interest over the last two or three years. So actually, clients looking at buying multi-year, multi-line programs with it with a true dovetailing single limit type um type policy, we're seeing increasing interest even in the softening market that we're seeing, that we're seeing now.

SPEAKER_01 15:13

What sort of advice are you what sort of advice are you giving to your clients on how best they can mitigate the current you know supply chain environment and obviously building that resilience that future resilience because as Danny's mentioned, he sees that supply chain continuing to change for the next decade.

SPEAKER_03 15:34

Yeah, so I think I think we've been through a lot of things that we can look at from a data perspective to help reduce cyber supply chain um vulnerabilities. I I would I would actually point clients towards looking at conducting regular disaster scenario modelling exercises with with a broad spectrum of stakeholders within their businesses. So what's what what what's the worst thing that go wrong and assume it goes worse, and then really map out how your business would respond. And if you can see gaps in your response, then I think you're well positioned to make sure that when you know when the worst does happen, that the risks are mitigated, the business can get back up on its feet as quickly as possible, and and you know as a business where to go to to solve the problems. So who the external parties are that you might have to engage with, you could get pre you know pre-event contracts in place with those guys so that when something goes wrong, you know you've got an off-the-shelf solution. I I think um yeah, that does that disaster scenario planning, I think, is a really key thing that clients should use both for supply chain management but but also for other risks that exist within the um within their you know on their register.

SPEAKER_01 16:49

I I suppose from that point of view, is it a case now where as in you know as as insurers, you yeah, given the amount of sort of broader data that you get, um, you know, above and beyond what your individual clients have had. I mean, I suppose in a way, one of your key, I suppose one of the key tasks now, given the the the dynamism of the uh of the current market, is trying to trying to sort of almost like you know look into that crystal ball and think, well, actually we know the market, you know, we know supply chains are going to change, but where do we see them in three years, five years, ten years? So then then at best you can then invite advise your clients on the their best way to navigate what's coming ahead.

SPEAKER_03 17:37

Yeah, absolutely. I I think taking that medium-term view of where of where the risk landscape is going is is a key part of the you know, but I'd say the market's job rather than insurers. So insurers, brokers, risk managers actually take taking that medium term view, I think is really important. Um, you know, the impact of climate change isn't isn't um fully felt now with regards to where CapEx is going, but we're we're also seeing an increasing volume of clients when they're looking at CapEx projects, they're looking at what's going to be underwater in 50 years' time. So actually, I I think it's it's really important that we do take that long-term view to help our clients navigate not just the risk landscape now, but where it will be in three years' time, five years' time, and actually even even longer when we're talking about those long-term projects that our clients are involved or involved with.

SPEAKER_01 18:32

Is there a recognition, do you think, from the clients and the risk managers that they do need to have that sort of, you know, they do need to have that sort of long-term view? Um why I say that is because if you think about it, um, I look at the World Economic Forum, they do their annual global risk report. Um, and of course, if we'd gone back two or three years, all anybody wanted to talk about was uh climate change. But of course, given the given the you know, given this was came out in January and there was the you know, we had we were in the midst of the tariffs and and obviously um the you the Ukraine and Russia were were you know was ongoing and and I think the tensions in the Middle East were rising, a lot of businesses then turn around and say, well, actually, oh no, my big worry is my big worry is my geopolitical risk, and and actually climate change can, you know, well we it's not no longer on my radar. I suppose in a way that's the conversations you might have to have to say, well look, we appreciate the current pain, but you need to plan for, as you say, those days, you know, a decade uh decade away where really is your will your will your facilities be underwater or will they be in the middle of a will they be in the middle of a sort of you know heat heat wave driven desert?

SPEAKER_03 19:51

Yes, but honestly, but I I think as ever this sort of stuff is that short-term versus long-term view, and you always have the short-term pressures around particularly costs. So you think, well, i it it might be an issue in 50 years time, and it will cost me an extra 10% now. So is that is is that kind of long-term, how long term I suppose is that cost that is that cost benefit analysis gonna um factor into those decision making, I think. Um, because as we know, things change in the short term, which which have you know quite big impacts on our client, on our on our client base and actually might cause short-term needs to spend money on certain things in in the short term, which which could come at the sacrifice of those longer term investments, which arguably are just as important.

SPEAKER_01 20:36

Danny, Luke, I can only thank you. Um we could have, I mean I've got to be honest, Bannett, we're coming to the end of our podcast, but we could have chatted about this for hours, I think. Um I really appreciate your time on obviously your input and your expertise. It is a you know it it's an area which is of very, very big interest to our readership. Um, and as I said, I I mean again the supply chain is actually at the centre of a lot of um the world's current emerging risks, and and I think I agree with Danny will be for uh for many years to come. So I really appreciate your your really appreciate your time, really appreciate your input, and hopefully in a few months, you know, in the months to come we may well revisit this and see see how far we've we've got with our predictions. But thank you so much. I really appreciate it.

SPEAKER_03 21:22

Thanks, John. Thanks, John, you're welcome. Cheers.

SPEAKER_00 21:27

Thank you for listening to Maximum Exposure Talking Emerging Risks, a new series of podcasts brought to you by emergingrisks.co.uk. We're a dedicated publication looking at the future of risk, delivering insightful news and cogent analysis on the key emerging topics facing the market in these turbulent times. With over 150,000 impressions every month, Emerging Risks has now established itself as the go to read for all those concerned with the latest analysis and trends in a dynamic and fast moving risk environment.