Beazley sees troubled waters ahead and they aren’t the only one. The CBI also warned today that the UK is in danger of moving into a recession. But is that surprising given the huge money printing over the last two years of the pandemic, plus encouraging people to stay home and therefore not spend on meals out, travel, family get togethers and more?
The harsh truth is that borrowed Covid grants/loans and furlough money was always going to be repaid somehow. One way of doing that is for governments to encourage inflation, as it lowers the repayment value in real terms. Inflation also destroys the true value of cash savings, thus forcing people to spend or invest, hence the current insane UK house price boom. What other asset can you buy with a return that matches 25-50% in the UK? Crypto? Too risky. Shares? Don’t make me laugh. Gold? Stagnant.
Furthermore, the WEF/Globalist policies of rationing everything for 80% of people; food, travel, heating, medical care etc. will also lead to hyper inflation, as the price of everyday essentials surges. Some foodstuffs are already up by 50%, energy bills by around 25%-30%. That in turn bumps up the overheads for manufacturing or distributing goods and services.
What does this mean for insurers? Certainly more attempted fraud and cancellation or reduction of cover in some cases, as businesses and people look to cut costs. Fewer car claims perhaps, as people continue to reduce their driving miles although the high risk activity of driving to and from work is a necessity, not a choice. The recession might also cancel that Great Resignation trend, as some individuals realise they aren’t able to survive the choppy waters of rising overheads, lower consumer demand and sketchy materials prices ans supply. The reality could be that Covid loans and furlough have actually allowed some lazy people to do very little for two years and build up a cash reserve. Once that cash runs out, they will be looking for paid employment again. Give it a year.
Inflation also poses a challenge in terms of pricing. Especially in the Motor sector where people now expect cheaper insurance thanks to the FCA. The reality is that premiums have to rise in line with inflation. On the Commercial side, Beazley has taken a more in-depth look at the wider risks on the horizon. Here’s the word;
Beazley’s latest Risk & Resilience research into geopolitical risk, published today, shows that events so far this year have significantly altered business leaders’ perceptions of the risks they face and their resilience to those risks, which has fallen dramatically since 2021. The impact of inflation is also causing deep concerns about domestic stability alongside the fear that global tensions are increasing the threat from external forces. As business struggles to adjust to this new reality, preparedness and mitigation strategies are becoming a key focus.
Beazley’s new report Spotlight on Geopolitical Risks https://reports.beazley.com/rr/2022/geopolitical/index.html
shows that across the UK and US, few business leaders feel well able to manage current geopolitical risks. Concerns about the possible consequences of war are spiking upwards compared with last year, and in the first year we have asked the question, inflation has become a dominant issue.
The report’s results paint a troubling picture.
- It is urgent that business builds its resilience as we face a high risk/low resilience geopolitical environment.
- Inflation is a dominant threat with 55% of business leaders believing they lack the necessary resilience to deal with it, which rises to 65% in the United States.
- The proportion of business leaders ranking war and terror as their top risk is up 46% on the previous year.
- Economic uncertainty is up 31% on the year before.
- Rising prices and an unpredictable economic environment are driving instability and civil unrest as we have already seen in Sri Lanka, with countries such as Egypt and Turkey possibly vulnerable too.
- US business must confront the double threat of unpredictability at home from rising gun violence, whilst as a world superpower it is facing up to a watershed in geopolitics as its relationship with Russia and China shifts.
- Business leaders need to better understand their geopolitical risks and prepare for and seek to mitigate them where possible. Specialist political risk, trade credit and terrorism insurers have a role to play in providing appropriate cover that provides the risk mitigation that they need.
Roddy Barnett, Beazley’s Head of Political Risks & Trade Credit commented:
“Against a challenging backdrop, business strategies are now at a point of inflection. Even those territories far removed from the theatre of war in Eastern Europe are feeling the impact of global sanctions and commodity shortages on risks across the board from supply chain to cyber to political risk and trade credit.”
“Businesses need to know that as we face a moment of geopolitical change, which is fraught with unpredictability, they can protect overseas physical assets and their human capital both at home and abroad, by actively investing in a mixture of risk management and effective insurance cover.”