For multinational companies, wherever they are based, navigating the global risk landscape is anything but straightforward. Aside from a slow-to-dissipate pandemic, these organizations are dealing with a range of challenges including supply chain issues, inflation, and workplace talent shortages, not to mention possible ramifications from the regional conflict arising from Russia’s invasion of Ukraine. Brokers and underwriters trying to help these policyholders assess, mitigate and transfer part or all their risks in the shifting environment are similarly faced with complex and changing scenarios.
Several experts attending the Risk and Insurance Management Society Inc.’s first in-person annual convention in three years in San Francisco in April said that cost pressures, increased taxes and regulations make operating on the global stage more complicated today than in the past. In addition, multinationals are facing a period of rapid digitization brought on by the pandemic. While this has accelerated efficiency, provided new revenue opportunities and introduced more expedient ways of working, there are obvious risk downsides. Cyber threats have shot up the risk rankings published by major industry players, for example.
Against this backdrop, risk managers are facing persistent price increases. Insurance rates continued to increase in the first quarter, according to the latest global insurance index from Marsh. That marked the 18th consecutive quarter of rate increases in the commercial property/casualty insurance marketplace, albeit rate hikes are decelerating for many lines. In this environment it should come as no surprise that multinationals are seeking every available edge to manage costs, create efficiency and ensure consistency in the way their operations are protected.
The good news is that many options are available to organizations as they explore how best to manage and transfer their risks in the challenging insurance market. As we report on page 12, demand for global insurance programs is on the rise as buyers with international activities and operations seek to manage their exposures around the world. For many, these programs can be a good, cost-effective option. Captive insurers, which have long been used by multinationals when coverage in the commercial market cannot be found or is not available at an affordable price, are also seeing greater use. While some are dusting off existing captives and increasing their retentions to offset the increase in rates, others are establishing captives for new lines of coverage, with many reporting growth in financial lines and cyber risks in captives.
Meanwhile, organizations face complex environmental, social and governance risks, with their actions on climate change, energy transition, diversity and inclusion, cybersecurity and sustainable investing increasingly under the microscope. For multinationals operating in multiple countries with cultural differences, the need to address ESG issues is perhaps even more relevant and complicated. Brokers report that larger clients are more frequently seeking advice on how to handle ESG risks, and several insurance initiatives have been introduced that would reward those with superior ESG frameworks, such as in the directors and officers liability arena. However, more nuanced risk management and transfer solutions will be needed as global businesses in different sectors look to address ESG going forward.
