The year ahead will be defined by the continued fallout from the Covid-19 pandemic, with the industry set to face both internal and external challenges.
The market’s view on the year ahead has changed dramatically in the past month. Before the emergence of the Omicron variant, global vaccination efforts had begun to see life looking to return to a degree of normality.
However, the enhanced transmission of the new variant has already seen tighter controls introduced, with the advice to work from home amid the spectrem of a potential return to lockdown this month and travel restrictions unless the spread can be slowed.
Before Omicron the insurance market was already wrestling with the impact of the new normal. A near- wholesale shift to hybrid working was under way as staff and the wider London market were implementing systems that saw teams spending two to three days working remotely. While enforced working from home over the past two years disproved fears productivity would fall, the market has longer-term challenges with the new system.
The re/insurance industry relies heavily on relationships and nowhere more than in London. Complex risks require negotiation and expertise-led decision-making.
While video calls have provided an interim solution, there is a recognition the pandemic has reinforced the benefits of meeting face-to-face.
Often complex claims discussions involve persuading parties to consider alternative perspectives or weaknesses in their own stated positions. That can be tough when it is not face-to-face. For all the utility of online meetings, since so much communication is nonverbal, there is no more efficient means of resolving claims disputes than a face-to-face meeting.
Soft skills are an important factor in resolving complex and technical claims. The ability for the industry’s next generation to learn from their more experienced colleagues has always relied not only on structured training but also the ability to learn by osmosis, ask questions and the ability to build their own market relationships.
Firms across the industry are looking at ways to mitigate the reduced opportunities for face-to-face interaction, both inside and outside the company.
The year ahead will undoubtedly see the scale of the investments into ‘greener’ energies such as hydrogen and carbon capture significantly increase, as well as the existing solar and wind technologies
The rapid development of remote tools has been integral in the market’s ability to trade through the strictest restrictions over the past 18 month. Technology will continue to accelerate the development of more sophisticated tools to enhance remote working and it is likely we will see a further dichotomy between the working balance as some move to a completely remote working week.
If what distinguishes the London market from other global insurance hubs is the ability to resolve complex issues face-to-face, what would the implications be for London of a signicant shift to remote working? This question requires consideration alongside the possible medium- to longer-term implications of Brexit, bearing in mind by some estimates close to 85% of the capital in the London market ultimately comes from non-UK- domiciled companies.
The rise in the focus on environmental social and governance (ESG) will undoubtedly be one of the biggest challenges for the market in the year to come. The drive to net zero and the growing pressure on companies from shareholders, staff and clients regarding their ESG performance has seen vast amounts of capital now owing into new technologies and renewable energy projects.
Much of that capital investment is being sourced from the private sector and the availability of insurance will be a vital factor when investors consider if these new technologies have a place within their investment portfolios.
The year ahead will undoubtedly see the scale of the investments into “greener” energies such as hydrogen and carbon capture significantly increase, as well as the existing solar and wind (on- and offshore) technologies. The pace of investment will only increase as the drive for net zero continues. It will create new risks and with it the demand for new risk solutions. It will however require ever more specialised responses in the case of a major loss event. The industry is also faced with difficult decisions to make. While the desire for a net zero economy is growing, the timetable for delivery extends beyond 2050 for some.
The global economy will remain reliant on oil and gas and petrochemicals for decades to come. It is concerning some insurers are not only pledging their support for new renewable energy sources but also looking to withdraw support for oil and gas projects in the near term as a result of shareholder pressure. What impact might this have on the global economy? Could it lead to higher energy prices in the short term, which could actually reduce funding available to invest in the ESG agenda.
As the pressure on insurers from shareholders and policyholders will only increase in the year to come, the question arises as to what role the insurance market should seek to play in the transition from fossil fuels to renewables.
Adam Humphrey is chief executive of GRS International
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