With winter very much on the horizon, the UK insurance sector faces a dual challenge, ongoing global supply chain interruptions and the impending impact of severe winter weather. Understanding these challenges and their potential effects is crucial for insurers and their clients to navigate the uncertain landscape effectively.
Global Supply Chain Interruptions: A Multifaceted Challenge
The global supply chain has been under significant strain due to several factors:
- COVID-19 Pandemic: The legacy of the pandemic has continued to disrupt manufacturing, shipping, and logistics worldwide. Lockdowns and restrictions have led to reduced workforce availability and operational capacity, causing delays and bottlenecks.
- Shipping Bottlenecks: Major ports, including those in China and the US, have experienced congestion, and the Suez Canal and Red Sea are experiencing their own disruptions that are resulting in limited movement across one of the world’s busiest shipping lanes. Naturally, this is leading to delays in the transport of goods and increased shipping costs, resulting in higher insured values and potentially higher premiums
- Raw Material Shortages: Another legacy left behind in the wake of the pandemic is the shortage of essential raw materials, affecting delivery and production timelines across various industries, including construction, a potentially critical issue when looking to the months ahead and the likelihood of increased demand for building supplies to cater to weather related property repairs
- Geopolitical Tensions: It goes without saying the current geopolitical tensions playing out across the world have resulted in considerable trade tensions and regulatory changes that have further complicated supply chain dynamics.
- Labour Shortages: A global shortage of skilled labour, particularly in logistics and transportation, has exacerbated the situation and the UK is certainly no exception, recently financial modelling done by the UK Recruitment and Employment Confederation returned an estimate that skill shortages now cost the UK economy £39 billion a year. Once again, this has impacts beyond transportation and shipping logistics, extending into the construction and building workforce that is also often integral to the success of property claim settlements.
These compounding circumstances have significant implications for the UK insurance sector, regardless of season. Now, when you consider that we are facing a very wet and cold winter with the potential for a repeat in the storm severity that we saw last year, a whole new set of related and isolated challenges presents itself.
- Property Damage: Severe winter weather can lead to property damage from snow, ice, and freezing temperatures, resulting in an increase in property insurance claims, that lest we say it again, may be intensified by a lack of available materials for repairs and shared labour shortages.
- Business Interruption: Adverse weather conditions can disrupt business operations, leading to potential business interruption claims. Similarly, the aforementioned shipping delays are likely to result in an increase in business interruption claims, especially for companies relying on just-in-time inventory systems.
- Travel Disruptions: Winter weather can cause travel delays and cancellations, impacting travel insurance claims. Equally, this can cause disruptions with air freight, and once again escalate the already delicate situation in the global supply chain.
- Health Risks: Cold weather can exacerbate health issues, potentially leading to an increase in health insurance claims and a further decreased workforce.
Knowing all this leads to the all-important question, what can you do to prepare now for the months ahead?
As you can see, there are common themes amongst these two concurrent situations and their potential impact on insurers. The first being the potential for an increase in claims volumes across multiple departments. The second is increased risk and the need for insurers to reassess and in some cases reinvent their risk management strategies.
The Right Talent: Increased claims volume, whether it be due to the weather or supply chain issues or a combination of both, means that a primary consideration should be adequate resourcing. Partnering with a claims specialist, such as Gallagher Bassett, is one way to ensure that you are ready to deal with claims surges and scale up or down as required without overinvesting in full-time talent.
Underwriting Expertise: Another immediate consideration before the winter weather sets in, and as the situation in the global supply continues to evolve, should be reviewing your underwriting criteria to ensure you are accounting for the increased risk associated with severe winter weather and major supply chain disruptions, underestimating ongoing threats will undoubtedly not serve your bottom line well at this seemingly pinnacle point in time
Reset Your Strategy: Reassess your risk management strategies for clients, in the face of supply chain disruptions, it is important to focus on supply chain resilience and contingency planning, and where necessary bring in outside expertise with specialty knowledge to make sure your strategy is sound. When it comes to severe weather contingencies, it is worth keeping in mind that entirely new risk models may be required, offering specialised coverage for climate-related risks and promoting sustainable practices. Again, this is where the right partner can assist, equipping you with the agility to adapt and change quickly and avoid the potentially costly consequences of standing still in the face of a storm
Upgrade Your Customer Experience: To handle increased claim volumes, and with them, the need for your best customer service talent to be available for claims escalation and resolution, consider investing in user-friendly websites, mobile apps, and self-service portals to provide easy access to policy information, claims filing, and customer support.
Adjust Your Policies & Premiums: No matter how resilient your risk management strategies, sometimes a situation calls for adjustments to policies and premiums and after re-examining your risk management strategies and underwriting criteria you may find you are in the midst of a situation that warrants such a change. If this is the case, you will want to revert to ensuring you have multiple customer service avenues available and an adequate level of customer service specialists to help your customers understand the changes.
When you combine the issues facing the global supply chain with the increased potential for severe weather during the winter months ahead, insurers are going to be in for a challenging time.
The good news is you do not have to go it alone. Our experts can provide a comprehensive view of the upcoming hurdles and guide insurers in confidently overcoming them. Reach out to us today to find out how we can help.
