Commercial insureds favour supply chain certainty over higher costs of goods

Commercial clients of the Canadian P&C industry are pragmatically accepting higher costs of goods to achieve more certainty around product and service delivery, one P&C industry executive observed.

It’s a pragmatic response to a volatile world featuring war, a looming economic recession, climate change, labour shortages and supply chain disruptions, observed Zurich Canada CEO Saad Mered, who was visiting his clients at the RIMS Canada Conference held in Halifax Sept. 11-14.

“Some of our customers…are being quick to adapt, change their investment strategies, and re-jig their priorities,” Mered told Canadian Underwriter in a phone interview from the conference. “All of them have real operational challenges in terms of the supply chain and the speed at which they can practically invest. I think all of them are going towards safer environments.

“We don’t see a lot of our customers expanding into new territories, for example. I think they’re holding firm to what they do, what they know, and what they have, and are trying to do more and better with those assets. In some cases, they are re-trenching, where clearly they are in locations where it doesn’t make sense to have so much risk out there.

“I think the word for me right now is ‘pragmatism,’ and agility in solving immediate challenges.”

Re-shoring and on-shoring of assets is taking place so insurance companies’ corporate clients are less exposed to supply chain disruption and energy price increases, Swiss Re’s recent sigma report observed. Such risk mitigation measures may mean companies will pay more to relocate parts of their supply chain operations; and some of their business costs may increase by pulling out of economically advantageous areas.

But Mered said business clients are now willing to accept higher costs if it means more certainty regarding the delivery of the goods or services.

“Yes, they may be willing to accept a higher cost of doing business, because the downstream effects of higher costs, if the money is spent correctly, is more certainty for their customers, and more certainty with service delivery,” Mered said. “People are not happy about the price increases, but what really riles them up is not to have the item or the service delivered.

“If we’re going to pick one of the two evils, I think they’ll gravitate towards, ‘I’ll pay for the certainty. Just get it done correctly, or give it to me correctly or service me correctly.’”

Mered noted a Global Risk Report issued by the World Economic forum (with collaboration from Zurich, Marsh and SK Group), which listed three knock-on risks emerging from the pandemic. These include a “lack of social cohesion” (a significant factor in geo-political conflict), mental health deterioration and “livelihood crises.” Cyber risk and climate change were also cited as Top 5 concerns.

These themes are similar to the concerns expressed in years past, Mered noted.

“I think the real topic, because of this reprioritization of risk for this year, is really, what do you do about it pragmatically to address it?”

 

Feature photo courtesy of iStock.com/bfk92