Maintaining resilience as a new world order takes shape

The pandemic and war in Ukraine have heightened concerns over national security in different fields, including food supply. Increasingly, we expect local and regional self-preservation instincts will come to underlie policy decisions, with three main tenets leading to a new multi-polar world of blocs of economic influence.

The pandemic served as a wake-up call for advanced economies to become more supply-chain resilient, not least to mitigate hold-ups to delivery in key sectors such as healthcare and electronics. To strengthen supply chain resilience, many advanced countries have been discussing "re-shoring" and "friend-shoring" part of overseas production activities back home, and raising local procurement rates. Despite reducing overall trade, in this sigma we simulate that reshoring would boost global GDP by 0.2% over five years, with the US, UK and Germany benefitting most. Export-substitution countries with higher external trade dependency such as Mexico and Vietnam lose most in a reshoring scenario but, conversely, gain most from friend-shoring activity.

From the insurance angle, we estimate that the same reshoring activity would generate USD 30 billion in global commercial insurance premiums over five years, mostly from engineering, property and liability covers. Marine and trade credit premiums would fall. Friend-shoring would generate USD 3 billion in premiums.

Heightened concerns over energy security because of the war in Ukraine has focussed attention on the need to accelerate the transition to green energy. Many countries have targets for investments in renewable energy capacity and we estimate that meeting those targets would generate cumulative global insurance premiums of USD 237 billion by 2035 from, for example, construction and engineering all risk covers. These premiums will in part replace business from fossil-fuel risks as insurers pull back from underwriting the latter.

We expect that deglobalisation, the second-order effects from high energy prices and climate change impacts will keep food prices elevated. In a multi-polar world of more fragmented trade flows, countries highly dependent on food imports (many low-income countries) will be most exposed to disruptions to supply chains. Agricultural insurance can be a key tool in maintaining food security: we forecast a near-doubling of global agricultural premiums by 2030.