Home / International / Global supply chain rejig ‘a bonanza for insurance’
14 September 2020
A restructuring of global supply chains will boost global insurance earnings by around $US63 billion ($86.63 billion) over five years, Swiss Re estimates.
That includes a $US1.2 billion ($1.65 billion) boost from new demand for engineering cover during construction of new manufacturing facilities, and $US9 billion ($12.37 billion) for commercial insurance.
Manufacturers are speeding up the development of parallel supply chains in new host markets to diversify and strengthen their operational resilience.
Markets in Southeast Asia will be the preferred destinations as new host locations. There will also be some re-shoring of activities back to the US, the euro area and advanced markets in Asia, Swiss Re says.
“For insurers seeking to cover business disruption exposures, the more transparency there is on supply chain flows the more insurable the risk becomes,“ according to Gianfranco Lot, Swiss Re’s Head of Global Reinsurance.
“The development of parallel supply chains to de-risk the global flow of intermediate goods/services is a key macroeconomic trend.”
There had already been some “tempering of globalisation fervour” following natural catastrophes such as the tsunami in Japan in 2011, and widespread flooding in Thailand, which inflicted costly supply chain interruptions across different industries.
The COVID-19 pandemic has accelerated that trend after it severely curtailed the movement of goods and people. Rising political risks, such as new tariffs and trade war threats, have also prompted manufacturers to rethink their globalised production and sourcing strategies.
These changes will yield new opportunities for insurers by generating new demand for risk protection in contingent business interruption and non-physical damage.
The healthcare, technology, consumer staples, textiles and electronic sectors will likely be at the forefront as firms diversify their manufacturing presence and parallel supply chains form alongside existing operations in China and elsewhere.