The world today is radically different to the one that saw in the turn of the decade

Long-held consensus around the demise of inflation and everlasting cheap capital has been ended by a series of shocks that not only culminated in the sharpest rise in prices and interest rates for a generation but has also brought a geopolitical reset that carries considerable global implications for security, investment, trade, supply chains and political stability.

The global economy has proved to be surprisingly resilient to these transformative changes. Despite navigating significant volatility and uncertainty in the wake of COVID-19, Russia’s invasion of Ukraine and now shipping disruption in one of the world’s most crucial trade routes due to war in the Middle East, growth has held up better than expected and defied widespread predictions of recession.

Winding road along a hill

2024: a turning point?

Expectations for the year ahead are positive, with upward revisions to growth indicative of the optimistic mood that has propelled equity markets to record highs in several countries. Sticky inflation (driving claims higher), elevated interest rates and heightened geopolitical tensions continue to hang over the global economy, however, and with the ‘biggest election year in history’ taking place in 2024, businesses and (re)insurers continue to operate in a high-risk environment.

The report's analysis portrays a highly complex and changeable risk landscape that traverses macroeconomics, geopolitics and technology. Tensions are high as more than 40% of the world’s population vote against a backdrop of economic uncertainty and an upsurge in armed conflict (as well as the proliferation of social media and artificial intelligence).

The risk of escalation in hot spot areas is ever present. The war in Ukraine is now in its third year and the danger of intensification continues to pose a threat to global security. Contagion or prolonged disruption to shipping in the Middle East could likewise see risks escalate and reverse recent global disinflationary trends. 

Civil unrest remains at elevated levels in ‘stable’ countries due to underlying grievances tied to inequality, the cost-of-living crisis and broader disenfranchisement. There are also broader power dynamics at play as world powers look to establish dominance in areas where materials crucial to the energy transition are sourced.

Landmark year for elections presents known unknowns for businesses

With the ‘biggest election year in history’ taking place in 2024, businesses and (re)insurers face considerable uncertainty, with some 60 countries, accounting for approximately 40% of the world’s population and gross domestic product, due to hold votes. 

The potential for political instability presents a major risk for 2024, with pre-existing grievances tied to the rising cost-of-living, food and energy insecurity, falling real incomes and high levels of debt generating more frequent acts of violence. These factors are being further inflamed by populism and polarisation, along with concerns that misinformation could undermine the democratic process. 

Howden data shows that insured losses from civil unrest have risen significantly over the last decade to total USD 7 billion in 2020-23. Rather than a series of random acts, recent losses from civil unrest are a manifestation of a highly challenged macro-environment, fuelled further by the proliferation of technology and the reach provided by smartphones and social media platforms. 

This year’s election cycle is set to introduce an additional dose of unpredictability into an already volatile environment. Businesses need to prepare for, and protect themselves against, escalating political-related risks, underscoring the value of political violence and political risk insurance.
Sandy Warne, Head of Terrorism and Political Violence, Howden Re

Heightened geopolitical tensions and the risk escalation in global hot spots are constant threats

Businesses globally are not only contending with the uncertainty posed by a landmark year of elections. Conflicts in the Middle East and Ukraine, along with persistent tensions across the Taiwan Strait, threaten energy security, global supply chains, international trade, and, by extension, resurgent inflation.

Geopolitical fragmentation is also causing structural shifts in global commerce following Russia’s invasion of Ukraine by redrawing trade maps across the world and bringing the potential for significant changes to supply chains. All of which underscores the need for companies to secure supply chains and reduce reliance on geopolitical hotspots.

Disruption to shipping in the Red Sea is the latest shock to trade. Resurgent activity by Somali pirates has also been recorded recently. The marine war insurance market continues to support vessels transiting volatile areas, with pricing adjustments reflecting heightened risks. Freight rates have also increased, with third-party data (from Freightos) showing a three-fold increase for certain routes since the start of the crisis. They nevertheless remain well below levels reached in 2021/22 and have moderated in recent weeks.

Steps alongside a cliff

Insurance: stepping up

All of which is impacting decision-making around investments, supply chains and operations. With little prospect of the macro-environment relenting, businesses need to prepare for, and protect themselves against, escalating risks. In doing so, they are encountering an insurance market receptive to supporting clients as competition yields increased capacity and relative stable pricing.

By stepping up at this time of instability, and maintaining coverage in high-risk areas, insurance is enabling commerce worldwide that allows ships to sail and businesses to investment. More work nevertheless needs to be done for under-insured exposures that are particularly relevant today, like supply chains and non-damage business interruption. Advances in data and analytics, alongside creative thinking around traditional structures and parametric triggers, are yielding mutual benefits to both buyers (new products) and carriers (new growth opportunities as price momentum wanes).

Howden stands at the forefront of these efforts by applying differentiated insights and expertise to deliver pioneering solutions. With macroeconomic and geopolitical shocks fuelling uncertainty, (re)insurance buyers require detailed analysis into key market drivers. Howden is leading the charge by providing cutting edge thought leadership and risk transfer advice to support clients in managing extreme volatility and maximising their potential.

Risk brings opportunity

Finding new solutions to sustain market growth and close protection gaps will become increasingly important as price momentum wanes.

The importance of (re)insurance comes to the fore in such an uncertain and volatile environment. No sector can rival the market’s expertise in understanding, measuring and mitigating risk.

Expert advice can make all the difference in securing protection at the best possible terms. Howden exists to support clients in managing market change and maximising their potential.

After five years of near-uniform hardening in the insurance market, conditions in 2024 look set to be more favourable for buyers as competition yields increased capacity and more stable pricing.
Julian Alovisi, Head of Research, Howden

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