Ukraine: A conflict thatchanged the world –the (re)insurance
industry response
Lloyd’s Futureset explores the role of the (re)insurance
industry in building resilience against the medium to longterm consequences of the conflict in Ukraine
October 2022

Contents

02

Foreword

03

01 Background05

02 Executive summary

08

03 Key market forces influencing the risk landscape

14

04 Responding to unmet client needs

47

05 Conclusion – converting insight to action

57

References

59

Ukraine: A conflict that changed the world – the (re)insurance industry response Foreword

Foreword

04

Russia’s invasion of Ukraine in February 2022 has proved – eight months later – to be a seismic
geopolitical event, with tragic consequences. Most significant has been the vast human costin Ukraine and beyond, with thousands killed and millions displaced or impacted by the conflict.
The spillover into the spheres of economics and politics has also been significant, with ripple
effects being felt all over the globe.
Many of the significant challenges businesses face at the time of writing are either directly or causallyconnected to the conflict. Inflation, prompted by rising food and fuel prices, continues to embed itself
in economies around the world with many governments and central banks being compelled to takeaction in an effort to mitigate the impacts. Market volatility continues to persist as experts try to
anticipate the changing geopolitical landscape. Social unrest continues to grow as electorates
express discontent at the economic and political fallout. There are no simple answers, with manydecisions taken to mitigate emerging issues running the risk of unintended consequences.
With little hope of a resolution in sight, the conflict and its impacts seem likely to be with us for theforeseeable future. Businesses seeking to respond must therefore develop a broad understandingof the changing risk landscape – and insurers must partner with them in building resilience.
Our first report, published 27 July 2022, sought to support the first aim by helping businesses build
their knowledge of the potential impacts of the conflict. “Ukraine: A conflict that changed the world”
analysed a range of plausible scenarios for the conflict’s development, while outlining their possible
consequences on areas like inflation, energy, cyber and supply chains. The analysis revealed thecomplexity of the risk landscape; the correlation and connection of these impacts; and the urgent
need for risk solutions to mitigate and build resilience against the conflict’s global fallout now andin the future.
In this second report, our focus turns to the role insurance and reinsurance can play in thosemitigation efforts: both the solutions already available, and the areas requiring further explorationand innovation in order to support the needs of our industry’s diverse customers.
Ultimately, it provides a call to action. Society needs insurance now more than ever, and uncertainty
is the currency of a risk management industry like ours. With a range of tools at our disposal – fromexpertise and capital pools, to innovation and extensive networks – our industry must accelerate
our efforts to help people and businesses face a complex risk landscape with confidence andresilience. Presented with the chance to address unmet needs through new solutions and ideas,
it is our innovation, investment and collaboration that will contribute to a global response thatbalances short-term critical needs with equally important long-term objectives.
In seeking to convert our insight into action, Lloyd’s and Aon are committed to deploying our expertiseand resources to drive action across the industry – including collaborating to establish an innovation
forum that will accelerate the development and delivery of novel solutions that can address emerging
client needs. This continues our market’s pioneering response to the conflict, ranging from parametricproducts to help businesses continue operations to a first-of-its-kind facility insuring grain shipmentsfrom Ukraine.
We’re determined to channel that energy towards powering further innovation in this time of upheavaland opportunity. Encouragingly, our conversations with insurance and reinsurance professionals aroundthe world have revealed the same resolve, giving us confidence that our industry stands ready andable to meet the task at hand.
We hope you find this report a useful tool as you plan those next steps, and we look forward to working
with you to build a braver and more resilient future.

John Neal
CEO, Lloyd’s

Ukraine: A conflict that changed the world – the (re)insurance industry response Dominic Christian
Global Chairman, Reinsurance Solutions, Aon
Deputy Chairman, Lloyd's

Ukraine: A conflict that changed the world – the (re)insurance industry response 

01
Background

01 Background06

Our first report: understanding the impacts
In July 2022, Lloyd’s and Aon published a joint report “Ukraine:
A conflict that changed the world”, which explored the medium tolong term consequences of the Ukraine crisis on the risk landscape.
The report examined the multiple implications of the still-unfolding situation in Ukraine on businesses andindustries, including how the conflict has accelerated existing global trends such as the growth in economic
and geopolitical risk, and social transformation.
Through interviews with over 75 (re)insurance practitioners and sector-specific experts, we identified sevenareas likely to create new pressures on businesses over the medium to long term: cyber, supply chain, foodsecurity, climate transition, energy security, ESG and public sentiment. Each of these market forces arehighly interconnected, making it ever-more vital that businesses have a well informed and broad strategic
approach to risk.
Given the unpredictable and evolving nature of the situation in Ukraine, the analysis was informed by an
exploration of five potential scenarios to help set out a range of possible outcomes from the conflict. These
ranged from a Russian retreat through to an extreme conflict escalation with more actors becoming involved.

More likely scenarios

Ukraine: A conflict that changed the world – the (re)insurance industry response Less likely scenarios

01	Defensive
push-back02	Protracted
conflict

03 Annexation

04	Collapseof Ukraine

05 Escalation

Ukraine military
successes force achange in RussianpolicySupport for Ukraine
from an alliance ofstates leads to a
protracted conflict

Russia controls partsof Eastern andSouthern Ukraine ina newly divided state

Ukraine collapses andbecomes incorporated
into Russia

Escalation leading to a
NATO-Russia conflict

Ukraine: A conflict that changed the world – the (re)insurance industry response 01 Background07

Developments since publication
Since publication of our first report there have been several developments in the crisis that will haveknock-on impacts on the risk landscape.
Examples of key developments include:

Nord Stream 1 andNord Stream 2
disruption:

The announcement that Russia will indefinitely suspend gas flows to the EU throughthe Nord Stream 1 pipeline is expected to worsen the already difficult gas supply
situation with ripple effects on households and businesses. A series of explosions
and gas leaks have subsequently occurred from both the Nord Stream 1 and Nord
Stream 2 pipelines, causing further shocks to gas prices.

Russia reducing
reliance on USD:

The agreement that China can now purchase gas from Russian state gas company,
Gazprom, in roubles and yuan instead of USD, could have far-reaching implications
on global supply chains as markets react and understand the implications of apotentially weakening role of the USD.

Zaporizhzhia nuclear
plant shutdown:

Due to fighting in the area, Europe’s largest nuclear plant has been shut down
to avoid a potential radiation disaster, exacerbating already existing energy
security challenges.

Russian annexation,
Ukrainiancounter-offensive:

Vladimir Putin has signed “accession treaties” formalising Russia’s annexation of four
occupied regions in Ukraine and signalled a potential nuclear escalation to protectthese new self-declared borders. Meanwhile Ukraine has made a number of territory
gains, including in regions previously annexed by Russia.

Russian mobilisationof troops:

Russia has announced a partial mobilisation of around 300,000 military reservists,
which has led to domestic protests and people fleeing the country.

With further developments in the conflict expected – and full mitigation of its impacts unlikely – businesses
must instead seek to adapt and build resilience against the conflict’s potential outcomes. The first stepis to build an understanding of the risks – as outlined in our first report – as well as the available solutions
highlighted in this second report.

Ukraine: A conflict that changed the world – the (re)insurance industry response 02
Executive
summary

02 Executive summary

Preparing for the possible
Our industry has been an active participant since the start of the conflict,offering a key financial lever in the global community’s response – andwe will continue to play our part as the crisis timeline extends.
As the conflict continues to take its toll on populations and economies around the world, Lloyd’s has worked
with global businesses, governments, and regulators to deliver a comprehensive sanctions regime against
the Russian state.
In July, we released a landmark report providing real-life, practical insights on the challenges that businesses
and communities are facing and how they can adjust their risk management approaches in response. And
when grain supplies became stranded in Ukraine’s ports, Lloyd’s provided essential backing to a UN-brokered
deal securing its recovery, while launching a landmark facility to insure the shipments.

Our industry also has a vital role to play in building sustained, long-term societal and economic resilience,
holding a formidable toolkit to tackle challenges across industries and address protection gaps:01	Capital: Bringing capital to bear
The (re)insurance industry can help to build long-term resilience by deploying its capital

to remove risks from customers’ balance sheets and reduce their exposure to volatile risks

02 	Solutions: Addressing emerging needs

Innovation in the sector will be essential in helping to address the complex challenges
that will emerge from the crisis. The (re)insurance industry has an opportunity to develop
new products and new ways of sharing risk to help businesses navigate what will be
an uncertain landscape for some time to come03

Risk advisory: Becoming a true risk partner	The industry can deploy its deep risk expertise by providing advice on risk mitigationand management to ensure that customers are prepared for a range of outcomes

Key to unlocking action04 	Collaboration:and driving change
Insurance is a key enabler of financial resilience, and cross-sector partnerships canaccelerate the development and delivery of the novel solutions that will be necessary

Ukraine: A conflict that changed the world – the (re)insurance industry response 

09

Ukraine: A conflict that changed the world – the (re)insurance industry response 

02 Executive summary

1011

The implications of the conflict are vast, and governments, businesses, and individuals around the world
will look to the (re)insurance industry for greater support in several areas. The opportunity for action
identified in this report across the seven market forces shaping the risk landscape is summarisedin the following table.

Implications to market forces

Market force

Implications

Potential role for insurance
Capital: Invest in modelling capabilities which
may improve investor appetite for cyber risks.

Cyber

Business implications: An increased threat ofcyber-attacks may spur demand for holistic cyberrisk solutions as incidents evolve in complexity.
Organisations may increasingly seek cover against
physical damage and business interruption orcontingent business interruption (BI/CBI) arisingfrom cyber incidents.
Insurance implications: The industry willneed to give careful thought to managing
systemic cyber risk exposure while improving
clarity for customers on wordings. In addition,
cyber risk models remain relatively nascent,lagging the growing threat and demand forcyber cover, currently limiting portfolio
expansion and insurability.

02 Executive summary

Solutions: Further develop affirmative cyber
physical damage offering and be more explicit
around CBI cover in cyber policies, for example
including a wider range of triggers.

Market force

Climatetransition

Solutions: Stripping war from core cyber policies
could reduce ambiguity for businesses, whilst
allowing aggregation risk to be effectively
managed. In the longer term, it creates potential
for greater innovation around cyber.
Risk advisory: Develop hypothetical business risk
scenarios to assist with contingency planning;
continue to help implement hygiene controls suchas encrypted back-ups and broadening access tocrisis advisory services.

Implications

Potential role for insurance

Business implications: The conflict has heightened
the need to balance short term energy security
and price volatility with low carbon commitments.

Capital: Developing an end-to-end approach forfinancing critical transition and climate innovation
activities, in partnership with the whole financial
services sector.

Insurance implications: The industry can support
an accelerated transition by providing risk transfer
solutions that promote green energy growth,whilst also addressing potential biodiversity
concerns stemming from any rushed renewableenergy projects and electric vehicle (EV) supply
chain challenges. Additionally, (re)insurers canplay a role in promoting energy security alongsideenabling an orderly and urgent transition by
maintaining support for companies withcredible transition plans.

Capital: Alternative risk structures can offer
continued support for companies with robusttransition plans.
Capital & solutions: Insurance can be used
to make emerging climate-positive technologies
investment grade, by bringing projects within
the risk tolerance boundaries of otherfinancial institutions.
Capital, solutions & risk advisory: Structured
solutions, multiline coverage and a strong
understanding of the risk landscape will likely be key
to providing more support to these technologies.
Solutions: Products to support biodiversity
protection gaps e.g. deserts, oceans and forests.

Supplychain

Food
security

Business implications: The conflict has
exposed existing supply chain vulnerabilities,
especially within large, complex supply chains.
Businesses may increasingly look to existing
insurance solutions such as BI/CBI, as well as
more sophisticated solutions that effectively
de-risk the full supply chain.

Solutions: Consider developing new supply
chain insurance that looks beyond physical damage
triggers to address non-damage BI and the risk oftier 2/3 suppliers facing disruption.

Insurance implications: The sector may
need to take more of a risk advisory roleto effectively support small businesses.
Trends such as near-shoring and re-shoring
may lead to increased demand for property
and construction coverages.

Risk advisory: Work closely with customers
to obtain detailed exposure data, a criticalcomponent in developing sophisticated analyticalrisk models; develop capabilities to better quantify
supply chain risk.

Business implications: Food security has become
a global issue, exacerbated by the conflict in Ukraine.
The potential for civil unrest in countries that arehighly reliant on Ukrainian produce may increasedemand for political violence or political risk
(PV/PR) cover in these regions. A desire forgreater food independence could fuel demand
for new agricultural solutions and the opportunity
to support farmers with commodity pricevolatility risk.

Capital: Seek to establish similar structured
solutions to the grain facility, for commodities
that Ukraine is rich in.

Insurance implications: The availabilityof insurance can continue to facilitate thetransportation of produce out of Ukraine.
Grain quality may be compromised if there
are shipment delays and improper storage
which the market could seek to address.

Ukraine: A conflict that changed the world – the (re)insurance industry response 

Solutions: Adapt existing solutions like parametricfuel price cover to include other essential
commodities.

Energysecurity

Insurance implications: Some energy classes
may see limited capacity due to (re)insurer
restrictions and exclusions. A need for infrastructure
re-development will likely drive midstream/
downstream (re)insurance capacity needs andsmall renewable energy projects will likely create
a new high volume, low-premium customer group.

Risk advisory: Leverage big data and analytical
tools to offer supply chain health checks which
could entail geospatial analysis and evaluating
dependencies between businesses and tier
2/3 suppliers.

Solutions: Develop products with a politicaltrigger covering the quality of grain in the eventof shipment delays and parametric solutions toprotect against a range of commodity price risks.
Solutions: Develop resilient and clearly worded
PR/PV cover for businesses operating indeveloping countries.

Business implications: Russia’s invasion of
Ukraine has led to soaring inflation rates andprompted significant monetary and fiscal action
by governments and central banks. Diversificationof energy sources away from Russian oil will
require significant investment in both infrastructure
redesign and new renewables. Surging energy
prices are leading to the recommissioning oftraditional and brown energy sources as nations
seek to balance long-term climate transition
goals with short-term concerns around supply
and affordability.

ESG & public
sentiment

Capital: Opportunity to continue supporting nuclear
industry through national pools and MGAs.
Capital: Respond to increasing demand in
Liquefied natural gas (LNG), requiring a
sophisticated underwriting approach, as well asother midstream/downstream markets.
Capital & risk advisory: Provide specialist risk
management support to small risks, such as
through collaboration on structured solutions
and delegated authorities.
Solutions: Develop innovative solutions forprivate energy generation or storage systems
e.g. build back better.

Business implications: Issues relating to theconflict and the associated heightened ESG focus
are creating complexities in the ESG landscapeand impacting public sentiment.

Capital & solutions: React to increasing demand for
litigation risk, reputational risk, crisis management
and civil liability products that can support
companies with the evolving ESG landscape.

Insurance implications: As such, there may be
increasing demand for insurance against litigation
risk, reputational risk and crisis management
products. There is also a role for the sector to use
its risk expertise in support of refugees andUkrainian redevelopment efforts.

Solutions: Develop explicit and clear coverage
within PV/PR policies, and create PR/PV coverthat is tailored for SMEs – a key protection gap.

Solutions: Support domestic farming activities
through enhancing agricultural index products.

Risk advisory: Continued development ofproactive risk management solutions and data
modelling capabilities, such as benchmarking,media monitoring and sentiment analysis.
Collaboration & risk advisory: Exploration ofhumanitarian sector partnerships can help theindustry deploy its advisory services to support
rebuild efforts and refugee cover.

Collaboration & solutions: Existing parametricsolutions can be extended to support humanitarianneeds through partnerships with governments
to speed up the transfer of funds.

Ukraine: A conflict that changed the world – the (re)insurance industry response 

02 Executive Summary

12

Progress to dateWith the conflict in Ukraine continuing to inflict devastatingconsequences, the insurance industry has taken proactive
steps to protect customers from the fallout.

02 Executive summary

Current (re)insurance industry progress in responding to themarket force challenges arising from the conflict

Immature
Existing policies have already responded to help customers navigate the enormous challenges they areexperiencing, with the Lloyd’s market reserving £1.1bn for customers impacted by the conflict1, and the sector
has also moved quickly to develop new solutions that address businesses’ emerging needs. However the scaleof the challenge means there remains a need for innovation and investment across all the themes explored inthis report.
The current maturity of existing solutions ranges between sectors: for example, the energy insurance market
is well placed to respond to the growing focus on energy security and the sector has already begun to takeaction to address the challenges and opportunities presented by climate change, food system resilience andcyber risks. In contrast, solutions for supply chain and reputational risk remain relatively immature, presenting
an opportunity for (re)insurers and brokers to meet a growing customer need.

Supply chain
The market for supply chain
insurance remains relatively
nascent. Risk transfer andadvisory solutions extending
to Tier 2 and 3 suppliers could
be valued by customers

ESG& public sentiment

Taking action
This research outlines the tangible steps insurance
and reinsurance organisations can take to support
society at this pivotal time, and the compelling
impetus for us to take further action as an industry
to help customers build resilience against thechallenges they are likely to face as a consequenceof the Ukraine conflict.
To support and accelerate the development of new
solutions in these areas, Lloyd’s and Aon will establish
a new innovation forum that will bring businesses,
underwriters and brokers together to find additional
ways to meet the unmet customer needs identified inthis report and leverage existing mechanisms suchas the Sustainable Markets Initiative and Lloyd’s Lab to
put these into action. The initial focus of theinnovation forum will be on three key topics where
the crisis has particularly exacerbated the challenges
facing businesses: energy, cyber and supply chain.

1

13

Reputational damage, politicalviolence and crisis management
remain areas where businesses
are likely to seek greater
protection

Gaining momentum
Cyber
Work has already begun to adapt
existing cyber offerings to suitcustomers’ needs arising fromthe conflict. Physical damage,contingent business interruption
and standalone war solutions
are examples where the industry
could take further action

Climate transition
The (re)insurance industry
has a key role to play in enabling
and financing the transition to a
low-carbon future. Further action
can help accelerate progress
across critical transition activities,
particularly the adoption of new
green technologies

Food security
Critical progress has been madeto limit the challenges aroundUkrainian grain exports. Thereis the potential for further action
around wider global implications,such as products to help scale
up domestic production

Lloyd’s Half Year Results, 2022

Ukraine: A conflict that changed the world – the (re)insurance industry response 

Ukraine: A conflict that changed the world – the (re)insurance industry response Well progressedEnergy security
Solutions are largely mature,with shifts in demand and thedeployment of capital the key
areas of focus for the (re)insurance industry

03
Key market forces
influencing therisk landscape

03 Key market forces influencing the risk landscape15

The Ukraine conflict has far-reaching implications across the global
risk landscape. The following section highlights the implications andopportunities for the (re)insurance sector across the seven key market
forces, namely cyber, supply chain, food security, climatetransition, energy security, ESG and public sentiment.
Cyber
Cyber is an unpredictable, growing and ever-evolving
threat that has implications for every individual,
community, and business. Whilst cyber-attack
activity has reduced in the immediate aftermathof the conflict in Ukraine, the threat of statesponsored cyber-attacks may grow in a climate ofheightened geopolitical tension. Western nations
that support Ukraine by imposing economic
sanctions, for instance, may face a particular risk ofpotential retaliatory attacks from Russian hackers.
Cyber risks are becoming ever more complex, withincreased likelihood of physical damage resulting
from cyber-attacks as well as greater knock-on
impacts on business interruption and supply chains.

The Lloyd’s market and global (re)insurance sector has
a key role to play in helping organisations build greatercyber resilience and there is significant opportunity forthe industry to demonstrate its value to customers byhelping them manage this evolving threat. A recent
example of this is outlined in Lloyd’s Futureset’s
geopolitical cyber report, Shifting powers: physical risk
in a changing geopolitical landscape which exploredthe development of affirmative cyber physical damage
offerings and developing explicit contingent businessinterruption cover in cyber policies.

 yber-attacks targeting criticalC
infrastructure increased from lessthan 10 in 2014 to around 400
in 20202 and have undoubtedly
continued to grow since.
Gartner, 2022

These effects will be felt by organisations worldwide,
particularly since cyber-attacks do not have the samegeographical boundaries as their physical counterparts.
Since issuing the first ever cyber policy in 1999,
Lloyd’s has played a crucial role in developing
this class of business. Today, Lloyd’s writes around
20% of global cyber insurance3, and recently it took
steps to improve clarity for insureds surrounding
war exclusions. Cyber will remain an importantclass and Lloyd’s continues to take a pragmaticand innovative approach to supporting the growthof the cyber market.

2
3

Ukraine: A conflict that changed the world – the (re)insurance industry response Gartner, 2022
Lloyd’s, 2022

Ukraine: A conflict that changed the world – the (re)insurance industry response 

03 Key market forces influencing the risk landscape

Implications and actions for the (re)insurance industry
Market theme: An environment of heightened
cyber threat is stressing the need to increase
cyber resilience
Key (re)insurance market implications
As the financial and reputational implications ofmajor cyber incidents become clear, organisations
may increasingly consider purchasing stand-alone
policies covering cyber with higher limits to ensure
adequate coverage.
Key (re)insurance market action(s)The (re)insurance industry is well positioned tohelp build cyber resilience
Insurers and brokers can continue to help
customers implement hygiene controls such as
incident response plans, encrypted back-ups, andupdated patch management programs, to help
improve cybersecurity; crisis advisory services
could further be extended to cyber as part of aholistic offering.
Developing hypothetical business risk scenario
exercises with risk managers - as many carriers
already do today - is also a useful tool to manage
uncertainty, helping with contingency plandevelopment.

Ukraine: A conflict that changed the world – the (re)insurance industry response 16

03 Key market forces influencing the risk landscape

17

Implications and actions for the (re)insurance industry
Market theme: The conflict has highlighted
potentially systemic risks in the cyber class
Key (re)insurance market implications
If not managed properly, a cyber-attack has thepotential to expose (re)insurers to systemic risks
To manage their liabilities and to ensure customers
have certainty about how their policy wordings willreact in the event of a claim, insurers need to beclear in their wordings as to the cover they areproviding.
Aon practitioners expect that in the coming 12-24
months every cyber policy could have enhanced
cyber war exclusion language. Cyber-attack risks
involving state actors have additional complexities
that require careful consideration from insurers.

Case study: The Lloyd’s Market Association(LMA) has undertaken an extensive exercise
in producing suitable model clauses
addressing state backed cyber-attacks,
published in 20215.

45

Key (re)insurance market action(s)Lloyd’s are committed to supporting a resilient
cyber market, and it is important that
underwriters understand the complex andpotentially systemic risks in the cyber class
Lloyd’s requires that all policies specify whether
cyber cover is provided by either including
affirmative cover or by excluding, and more
recently Lloyd’s announced that it will requirecatastrophic state-backed attack exclusions in all
standalone cyber-attack policies4.
Robust wordings can help to reduce ambiguity
for businesses on whether their policy will
cover for losses
Insurers should also ensure that their wordings
are legally reviewed to guarantee they are
sufficiently robust to reduce the risk of disputes.
Over the long-term, this approach can also enable
greater innovation around cyber cover, as thecapital requirements become less restrictive once
war is removed from the core cover. It also allows
insurers to appropriately manage aggregations toensure cyber risk is adequately priced.

Lloyd’s, 2022
LMA, 2021

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03 Key market forces influencing the risk landscape18

Implications and actions for the (re)insurance industry
Market theme: The threat of physical damage
from cyber incidents is increasing, including
attacks that target critical infrastructure
Key (re)insurance market implications
Some industries are more vulnerable to physicaldamage resulting from cyber incidents and are
more likely to seek risk-transfer solutions
The 2015 Ukrainian power grid cyber-attacks are
just one example of the detrimental impact cyberincidents can have on physical property. Industries
and businesses most at risk from cyber physicaldisruption and destruction are likely to need greater
coverage as the crisis develops.
Key (re)insurance market action(s)The cyber physical market remains relatively
small and specialised and there is an
opportunity to further develop existing
offerings with an informed understanding andassessment of the risk – this can be especiallytargeted at businesses operating in more
vulnerable sectors
The energy and power sectors are at significant
risk from hackers due to the level of disruption
such an attack would cause (e.g., mass power
outages and the knock-on impacts tocommunication and healthcare).

Ukraine: A conflict that changed the world – the (re)insurance industry response 

Case study: Brit offers protection
against physical damage resulting fromcyber-attacks to businesses operating in
the industrial and trade sectors through‘Brit Cyber Attack Plus’ (BCAP).
Alongside first and third-party coveragefor physical damage, it also covers forresulting business interruption, data
privacy and cyber liability, with limits up to$150mn.

Case study: The Lloyd’s market is paving
the way in developing solutions for the
maritime industry for cyber physicalrisks. The policies provide financial
indemnity arising from cyber incidents,
including physical damage
to the vessel or freight.

03 Key market forces influencing the risk landscape

19

Implications and actions for the (re)insurance industry
Market theme: There is potential for increasinglevels of business interruption (BI) following
cyber-attacks
Key (re)insurance market implications
Organisations may seek greater businessinterruption (BI) or contingent businessinterruption (CBI) related cover as the knock-on
costs associated with cyber incidents are better
understood
Depending on how the conflict develops, anincreased frequency of destructive malware
attacks is possible, which may cause greater BI
and loss of revenue, particularly for businesses that
operate with complex digital supply chains.
A cyber CBI loss can result from damage to aservice provider’s IT systems or a supplier on which
the insured depends. However, BI/CBI is notincluded in all cyber policies as standard. Whilst
some CBI policies include a broad range of service
providers, others restrict this coverage totechnology providers.

BI/CBI cover to protect against physical cyberattacks may be sought by businesses as the cost
implications are understood. For instance, acyber-attack against a New York office block inwhich a hacker accessed building management
systems resulted in $350 million from lost business.
Key (re)insurance market action(s)A significant opportunity for innovation in cyber
physical protections may be the extensionof third-party coverage from BI and CBIMany vulnerable businesses would be likely to seek
broader BI and CBI coverage that includes
a range of triggers and third-party service
providers.
As with primary party offerings, BI and CBI policies
require either add-on products, or a review andrevision of policy wordings to both manage thelosses from a major event and provide security topolicyholders that the risk is acknowledged andcovered.

Ukraine: A conflict that changed the world – the (re)insurance industry response 

03 Key market forces influencing the risk landscape

20

Implications and actions for the (re)insurance industry
Market theme: Further investment in cyber risk
modelling may be required to support growing
demandKey (re)insurance market implications
Cyber risk models remain nascent, creatinga lack of consistency in market underwriting
practice
The ability of (re)insurers to calculate and manage
cyber risks remains a developing area for cybercover, limiting portfolio expansion and insurability.

Key (re)insurance market action(s)Investment in improved modelling capabilities
will enhance risk appetite for cyber exposureand may enable further risk transfer to capital
markets
Technical hurdles around modelling may need to
be overcome to help capital market investors feel
more comfortable in providing further capacity
for cyber.
Consideration should be also given to unlocking
data collected by the relevant authorities
on cyber incidents which would help enhanceexisting modelling capabilities.

Ukraine: A conflict that changed the world – the (re)insurance industry response 

03 Key market forces influencing the risk landscapeSupply chain
The Ukraine conflict has caused significant supply chain disruption,
specifically leading to transportation challenges as well as
commodity and raw material shortages.
 ore than 600,000 businesses
Mworldwide are estimated to rely on
Russian and Ukrainian suppliers andcurrently face production bottlenecks6
Dun & Bradstreet, 2022

This crisis has exposed vulnerabilities in supply
chains for many businesses around the world.
As a result, firms need support to work throughnew ways to mitigate the risk of supply chain
shocks and are considering greater investment
in supply chain resilience. “Re-shoring” and “friend-shoring” may gain greater momentum as somebusinesses consider moving overseas production
activities back home or more locally.
The insurance sector has a significant role toplay in helping organisations develop adequate
supply chain resilience, wherever it is located.
While CBI cover has been available for over
40 years, the market for complex supply chain
insurance solutions remains nascent. Developing
solutions for businesses to de-risk their supply
chains has the potential to create large, newopportunities for the insurance sector that directly
addresses urgent business needs. Policies suchas BI/CBI, political risk and non-damage BI cover,that provide broader protection for a wide rangeof supply chain challenges would be of immense
value to organisations with complex supply chains.
Businesses may also increasingly require greater
protection against the risk of Tier 2 or 3 suppliers
facing interruption, a significant cause of disruptions.
Re-shoring and friend-shoring may require (re)insurers
to offer greater support to businesses as they increase
investment in new production facilities andinfrastructure. Finally, looking beyond existing products,
the industry can also explore ways to provide innovative
responses to mitigate commodity price increases tosupport sectors, such as construction, which haveseen particularly severe disruption.

6

Dun & Bradstreet, 2022

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03 Key market forces influencing the risk landscape

22

Implications and actions for the (re)insurance industry
Market theme: The ramifications of the conflicton supply chains across the globe are apparent
both directly and indirectly
Key (re)insurance market implications
Supply chain impacts are likely to be particularly
pronounced for industries such as manufacturing,where businesses rely on large, complex supply
chains. The industry must work closely withbusinesses operating in this sector to respondto the demand for more sophisticated solutions
that will effectively de-risk their supply chains
Supply chains often operate on lean, just-in-timeprinciples, with single-source suppliers, andtherefore the appetite for any risk impacting
the availability, price or quality of materials
is already very low. Businesses have found thatexisting supply chain products can be too costly
and restrictive around the causes of supply chain
disruption, limiting their adoption.
Case Study: Aon offers a range of supply chain
assessment and analytics solutions, intended
to support clients in better understanding riskin their supply chain and building appropriate
levels of resilience. The firm helps clients toprofile and quantify the risk presented at key
supplier sites, against a wide range of exposures.
Online diagnostic tools enable clients to gain
a quick assessment of their resilience posture,so they can optimise their investment in supply
chain risk management.

Case Study: Allianz have developed big data
models to map suppliers to industries andorganisations. This allows them to provide
company specific scoring and benchmarking,unlocking greater limits. They hope to bringthese benefits to the market soon.

Key (re)insurance market action(s)Businesses are seeking supply chain insurance
products that protect them against disruption
arising from a comprehensive range of causes
Creating new supply chain insurance that looks
beyond physical damage triggers to address
non-damage BI would help many businesses
manage their major supply chain risks. Carriers
may consider the support of treaty reinsurance
arrangements to facilitate this.
Improved data and risk modelling will be criticalto creating a sustainable supply chain offering
Developing successful products is dependent
on obtaining detailed exposure data frombusinesses on their supply chain. Close
partnership with customers will be criticalto access better data provision and unlocking
the development of more sophisticated analyticalrisk models. Carriers can further develop theircapabilities to link supply chain exposure to
BI modelling, which may help better inform BI
quantification. Partnering with specialist firms
offering such capabilities may accelerate acarrier’s ability to meet business needs.
Solutions that go beyond risk transfer canhelp businesses, particularly smaller ones,
better understand their supply chains andmanage their risks
The insurance industry can use big data andanalytical tools to help analyse risks across
supply chains, for instance, testing the supply
chain at each stage. Geospatial supply chain
analysis could further analyse dependencies
between businesses and Tier 2/3 suppliers.
Both brokers and insurers could also leverage
existing internal capabilities to advise businesseson their supply chain risks. Currently available
natural catastrophe early warning systems
might help insurers model the potential impactof a windstorm on customers’ suppliers andsupply chains.

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Implications and actions for the (re)insurance industry
Market theme: A reliance on Russia andUkraine’s energy and agricultural commodities
has resulted in a large rise in global commodity
prices, further impacting supply chains
Key (re)insurance market implications
Businesses may seek risk transfer solutions
to hedge against commodity price risks andsupport the long-term sustainability of theiroperating models
Ongoing sanctions and countersanctions
could limit available supply further, resulting
in a significant inflationary environment. Thisfurther threatens supply chain resilience
as firms could become unable to afford
critical supplies.
The (re)insurance industry may experiencesignificant demand for products that limit the
impact of supply chain disruptions arising fromlarge fuel price increases, as well as agriculturaland mining-related products.

Key (re)insurance market action(s)The (re)insurance industry has started todevelop solutions to address the risk of risingcommodity prices. These solutions could be
extended to support a wider range of industries
and organisations
Innovations to date have included fuel andcommodity price products which provide amechanism for firms to protect themselvesfrom fluctuating fuel and commodity prices.
Consideration is needed to ensure these aredesigned as insurance rather than financial
derivative products.
Similar parametric solutions, where they
can be structured as insurance, could be
developed for other commodities. Brokers
and (re)insurers can work together to accelerate
the development of such solutions for industries
such as transportation, manufacturing andconstruction which are typically more vulnerable
to price fluctuations.

Case study: Paratus launched parametricfuel price insurance specifically for shipping
companies in 2021. This product meets apreviously unmet need for risk-transfer
solutions, particularly because this sector
is highly exposed to changes in the price offuel. Claims are paid out automatically if theprice of fuel exceeds a trigger level determinedin the policy.

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Implications and actions for the (re)insurance industry
Market theme: Global construction projects
are more likely to experience delays, inflationary
impacts and supply chain issues associatedwith the conflict
Key (re)insurance market implications
Businesses in the construction sector may lookto enhance their coverage requirements acrossthe construction phase of projects amidst
greater supply chain risks
The challenges are compounded by the many
materials and components used in construction
projects manufactured on a just-in-time basis.
The (re)insurance sector may see increased
demand in capacity and coverage for insurance
products such as delay in startup (DSU) insurance.
Other products businesses may increasingly
require include sub-contractor default insuranceor trade credit solutions as contractors look todiversify and reduce their dependency on one
sub-contractor and supplier. BI/CBI insurance
solutions may also see much greater demand.
Key (re)insurance market action(s)There is potential to extend the support
provided to businesses operating in theconstruction sector
New solutions could be created to include suppliers
and sub-contractors in Tier 2 or above.
Brokers and (re)insurers can support with risk
advisory and mitigation services. ‘Supply chain
health checks’ could help mitigate supply chain
risks by identifying whether key suppliers are
based in areas with high political tensions or
flood risks.

Case study on Parsyl: Parsyl is helping
customers build supply chain resilienceby combining risk monitoring with insurance.
It offers data-powered supply chain insurance
specifically for businesses shipping perishable
goods such as meat, dairy, and vaccines.
By placing Parsyl’s sensors on shipments,
businesses may benefit from expedited claim
settlements, reduced claim costs, bespoke
deductible as well as risk mitigation insights
based on new data. Parsyl’s unique solution
and smart sensors helped identify atemperature issue with an air cargo client,with claim payments made in a recordbreaking eight hours.

Case study on Aon’s fuel and commodity pricesolution: Fuel and commodity price insurance,
brought to insurance markets by Aon in early
2021, protects firms against rising fuel andcommodity costs. This solution helps businesses
protect balance sheet strength and further
protects businesses as the global economy
transitions to cleaner fuels. Companies inindustries such as construction, energy, mining,
marine and aviation are typically most exposed,and coverage is triggered if the fuel/commodity
prices exceed an agreed limit. The difference
between the agreed price and the higher
monthly price is covered by the policy, with
policyholders indemnified monthly.

Case study: Zurich offers a policy called
Subguard, providing sub-contractor default
insurance and indemnity to the contractor
for remedial or completion costs that arise.

Case study: Zurich offers in-depth
assessments to help identify enterpriseand individual project level risks. For instance,
many contractors use the same subcontractor
for multiple projects.

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Food security
The conflict in Ukraine has led to severe disruptions to food supplies.
Russia and Ukraine are two of the largest global exporters of food andfertiliser, accounting for almost a third of the world’s wheat exports.
Regions such as the Middle East and Africa areheavily dependent on Russia and Ukraine to meetbasic food supply needs, with the disruption therefore
causing a disproportionate impact to the region.

I n May 2022, 25 million tons of grain
were estimated to be stuck in Ukraine7,
unable to leave the country due toinfrastructure challenges andblockaded Black Sea ports broughton by the Russian invasion. This has
driven up global food prices and hada meaningful knock-on impact on
supply chains, threatening global
food security.
UN, 2022

The Lloyd’s market provided essential backing to
the UN and Turkey-brokered deal to retrieve grain
supplies from Ukraine’s ports, helping address foodinsecurity and market volatility at a difficult time, andshortly after launched a first-of-its-kind facility toinsure shipments from the region.
Looking forward, as the food and drink sector seeks
to build greater resilience by diversifying supply chains
or increasing domestic production, there may be agreater need for both existing and innovative products
within political risk, trade credit, agricultural andparametric solutions. Worldwide, Swiss Re forecasts
global agricultural premiums to increase from $46bn
in 2020 to $80bn by 20308. This is particularly driven
by emerging economies. The agricultural sector
forms a significant part of most African economies,
yet insurance penetration remains low – across all
emerging markets, uptake of agricultural insurance
lies below 2%9. Greater collaboration between theinsurance industry, governments and humanitarianorganisations will be vital to supporting the developing
economies which face the greatest risk of a food crisis.
7
8
9

UN, 2022
Swiss Re Institute, 2022
Swiss Re Institute, 2022

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Implications and actions for the (re)insurance industry
Market theme: Significant volumes of crops
such as corn, wheat and sunflower seeds
remain stuck in Ukraine due to Russia’s
blockade of Ukraine’s major ports

Key (re)insurance market action(s)Key (re)insurance market implications

There is an opportunity to establish similar
programmes for other commodities critical to thefood and drink sector. These could look to blend
reinsurance, insurance, and third-party capital toprovide greater capacity to support businesses.

The availability of insurance coverage is key toallow cargo vessel owners to transport produce
out of Ukraine and to ease the threat of aninternational food crisis
Mined waters and the potential for an escalation
in hostilities creates significant risks to vessels.
Considerable amounts of grain are likely to be
stored temporarily, which may impact its quality
therefore risk-transfer solutions may be requiredby businesses who rely on high-quality grain to
make their products
If grain shipments are unable to leave Ukraine as
expected, they may need to be temporarily stored
using temporary storage bags or storing part of
the harvest on the ground10.

10

The (re)insurance sector is already playing
a significant role in promoting food security,
as demonstrated through innovative solutions
such as the Lloyd’s grain facility

There could be value in a solution covering
the quality of grain in the event of delays toshipments due to the conflict
The solution could indemnify businesses if theyreceive substandard quality grain from the conflictzone that they are unable to use, thereby promoting
food security as they are able to purchase grainfrom elsewhere. Similar policies already exist, but
the trigger in this case would be political.
Case study: The Lloyd’s market has launcheda facility for vessels exporting grain from Ukraine.
It provides up to $50 million in all risks marine
cargo and war coverage for exporters using
the newly agreed safe corridors. Backed by over
15 underwriting entities, the facility highlights the
crucial role of (re)insurance to navigate this crisis.

IFPRI, 2022

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Implications and actions for the (re)insurance industry
Market theme: Food shortages and subsequent
increases in food prices due to the crisis could
lead to increased social unrest
Key (re)insurance market implications
Businesses, particularly those operating
in developing countries more prone to civil
unrest, may give increased emphasis tothe consideration of political risk (PR) andpolitical violence (PV) programs
Over 60 insurers, mainly in the US, UK,
and Bermuda, supply this cover, with a total
market capacity of $3.7 bn. Although the riskof civil unrest is higher in developing nations,insurance penetration for PR/PV remains low
in these countries.

Key (re)insurance market action(s)Building clear and resilient PR/PV solutions,particularly for developing countries is essential
to attract large corporations and foreign direct
investment to higher risk, emerging economies
and promote economic growth.
Such solutions could include tailored propositionsfor ‘hotspot’ businesses (e.g. supermarkets or foodwarehouses) with features such as faster claims
settlements to mitigate the risk of a food crisis.
Solutions could extend beyond risk transfer: insurers
and brokers could help organisations develop
contingency plans in case of civil unrest.

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Implications and actions for the (re)insurance industry
Market theme: Developing nations, highly
reliant on food imports from Russia and Ukraine,
are now more vulnerable to food insecurity andmay experience food shortages

Key (re)insurance market action(s)Key (re)insurance market implications

Solutions that could be explored with humanitarianorganisations include parametric coverage to help
speed the process of getting funds to those inneed following supply shortfalls.

The insurance industry may need to lookat innovative ways to extend solutions andcoverage to areas in real need
Regions such as the Middle East and Africa
have limited alternative supply options. Somalia,
for instance, imports 100% of its wheat from
Russia and Ukraine. Helping developing countries
navigate the global food crisis is not only a positive
humanitarian initiative, but it also boosts economy-wide resilience which could create longer-term
opportunities for the insurance sector as
insurance penetration increases.

Partnerships with governments andhumanitarian organisations may be considered
to close protection gaps and develop robust
insurance schemes

An inflation protection product could also
be considered to boost income sustainability
in subsistence economies. Public-private
partnerships could be explored to put thenecessary infrastructure in place.
Case study: The Disaster Resilience
Framework (DRF), developed by the SMI Task
Force, blends public and private investment toimprove disaster and climate resilience in
low-to-middle income countries. An example
includes a parametric cyclone solution, basedon wind speed, which provided protection tohouseholds in Fiji whose assets were otherwise
uninsurable or uninsured.

Case study: Humanitarian organisations havepurchased a policy in Zimbabwe to protect up
to 800,000 people from drought risk. This
cover, provided by African Risk Capacity is built
on parametric insurance. It pays out before acrisis occurs, according to pre-agreed scientifictriggers, for example based on rainfall data.
Unlike a typical humanitarian model, in which
aid agencies receive funding after a crisis, thisapproach helps governments and organisations
plan prior to the drought.

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Implications and actions for the (re)insurance industry
Market theme: Russia’s attack on Ukraine
has driven up commodity prices creating
considerable uncertainty for farmers aroundtheir income levels
Key (re)insurance market implications
Farmers may increasingly require risk-transfer
solutions to hedge against commodity price risks
The extreme volatility of agricultural prices could
make it difficult for farmers to gauge their income
levels and threaten the ability for farming activities
to continue, escalating the food crisis.

Key (re)insurance market action(s)Innovative risk transfer solutions can promote
the sustainability of farming activities in theface of commodity price shocks
Parametric solutions can provide compensation
when commodity prices fall below a predeterminedvalue, with parameters obtained and data
independently verified by third parties. With no loss
adjuster’s assessment needed and automatic
claims payment, such solutions are more likely tobe affordable and well suited to small farmers.

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Implications and actions for the (re)insurance industry
Market theme: The conflict in Ukraine is having
a large knock-on impact on supply chains andfood security. To ensure an adequate supplyof food, countries are starting to turn towards
food independence and want to increase
domestic production
Key (re)insurance market implications
There may be a demand for new products forthe agricultural industry to meet the required
growth in domestic production
As domestic production ramps up, the industry
may invest in new agricultural technologies
to boost yields or increase efficiencies, forexample biologics that offer improved plant
health and soil fertility.
Some regions may require greater support(e.g. Middle East and African regions)Regions that are vulnerable to climate
shocks such as flooding, drought andirregular rainfall which may find it difficult
to increase domestic production.

Key (re)insurance market action(s)Extending the insurance protection offeredto domestic farmers can help promote
food security
Agricultural index insurance, still relatively nascent,provides for automated pay-outs if the index reaches
a pre-determined threshold. This index could belinked to parameters such as the level of rainfall.
Not only can this facilitate faster payments, but it
can also lower insurers’ costs, and therefore lower
premiums, compared to traditional crop insurance,
because farms do not have to be individually visited.
Case study: Swiss Re offers ‘Soil Moisture
Deficit Index Insurance’ which protects farmers
worldwide against drought related losses.
They have partnered with VanderSat, a global
provider of satellite-observed soil moisturedata. The policy pays out if case soil moisturelevels fall below a pre-defined level.

Case study on Stable – A Lloyd’s Coverholder
offering protection for volatile milk prices:
A key issue facing farmers and buyersof agricultural products is the volatility ofcommodity prices. Stable’s objective is tooffer a way for businesses, particularly in thetrillion-dollar food and farming industry, a way
to purchase insurance and mitigate their risk.
Stable’s solution is a parametric insurance
product which provides a safety net to dairy
farmers if milk prices fall below a certain level.
The parametrics are based on third-party
independently verified index prices to work out
premiums and claims payable. The insurance
pay-out is triggered if it exceeds the index-based
commodity price. As no individual loss
assessment and adjustment is required in thisprocess, claims payments are automatic which
ensures faster settlements and lower payments.

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Climate transition
As companies and consumers suffer the impacts of spirallingenergy prices, the conflict may put further pressure on governments
and companies to transition to greener energy sources, shifting awayfrom an over-reliance on fossil fuel producers.
Opinion in some parts of the world has wavered,
but many governments remain committed tobalancing the transition timetable whilst also
ensuring that consumers are protected throughthe current period of change.

June 2021, the task force is focused on driving
tangible progress as a group and accelerating thepace of industry transitions towards a more resilientand sustainable future, putting 'Nature, People andPlanet' at the heart of global value creation.

More than 90% of global emissions are coveredby net zero pledges11, so as nations look to diversify
their energy supply, green sources are an obvious
alternative, driving a growth in the renewable energy
industry and supporting an accelerated climatetransition. Whilst this is not a short-term solution
to current energy supply issues, it exemplifies theneed for green energy infrastructure and development,
particularly in nations with abundant renewableenergy resources.
For risk managers, risk carriers and investors,
insurance is a powerful tool to enable thedevelopment of innovative products andservices vital to the decarbonisation ofindustries and economies.
There are three key avenues through which(re)insurers can do this:

1.	The provision of risk transfer
products for green technologies
2.	The continuing support oftransitioning companies
3. Financing the transition

Lloyd’s has brought together leaders from a numberof the largest and most influential global insurance
firms to form an Insurance Task Force (ITF) as partof the Sustainable Markets Initiative. Launched in

11

State Street Global Advisors, 2022

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Implications and actions for the (re)insurance industry
Market theme: An acceleration in renewableenergy investment is expected due to thescarcity in fossil fuel supply and record
energy prices
Key (re)insurance market implications
There may be increasing demand for renewableenergy (re)insurance capacity
Global renewable energy insurance capacity
tightened following carrier exits amid a periodof high-volume claims, largely driven by theconstruction phase of the renewable energy
project lifecycle.
Renewable energy projects, particularly offshore
wind projects, have increased in size and complexity
in recent years, with this trend likely to continue,
evolving the risk landscape.
Rushed renewable energy projects that cause
damage to biodiversity and ecosystems could
impact an (re)insurer’s own ESG goals
This is important as biodiversity and protectionof ecosystems are “E” goals that should beconsidered alongside emission reduction goals.
Key (re)insurance market action(s)Renewable energy lines of business arelikely to continue to grow, with the potential
for insurance to extend beyond purely
traditional coverage
There will be growing demand for existing products
such as Contractors All Risks (CAR), Erection All
Risks (EAR), Delay in Start Up (DSU), property
damage (PD) and BI). Similarly, more emerging
covers such as extended warranty, intellectual
property, lab to scale guarantee, and revenue
shortfall and parametric cover will be demanded.

New insurance products to protect biodiversity
from any poorly controlled push to develop
renewable energy projects. For example, desert
ecosystems may be damaged by large solar farms
and endangered bird species could be impacted
by wind farms. As such, insurance products
to support natural ecosystems such as deserts,
wetlands, agricultural land, oceans, and forests
can help mitigate damage.
Big data can also be used to develop parametricinsurance that focuses on biodiversity. For example,
SSE Renewables is working with Microsoft andAvanade to create digital twins of offshore windfarms which can be used to reduce the impact
on ecosystems, by monitoring changes in reefs
and bird life around the farm.
Case study: In 2021 the SMI Insurance Task
Force published a Sustainable Products andServices showcase, which details for the firsttime, the wide-ranging commercial insurance
support that is available and supporting green
innovation across multiple sectors andgeographies. It details insurance coverages
across the hydrogen supply chain, solar energy,
wind power, and carbon capture, together withparametric and microinsurance schemes
protecting coffee farmers in Nicaragua andcyclones in Australia.

Case study: Travelers offers a specialised
insurance product known as Windpak® which
provides bespoke coverage for operational
wind farms and solar energy projects fromconstruction to completion, alongsidecrane safety training, a key driver of wind farmclaims. Lloyd’s has partnered with Travelers to
support further product innovation.

Case study: AXA XL has taken several steps tofocus on biodiversity, including calling for thedevelopment of biodiversity risk metrics
adapted to investor needs and committing tofunding the methodology development,
investing in numerous forestry assets,
leveraging parametric insurance to reduce
wildfire risk, and has started to take steps toinsure mangroves, currently unprotected bymarket-based mechanisms.

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Implications and actions for the (re)insurance industry
Market theme: The scaling of green technologies,
currently in their infancy, will be needed tosupport an accelerated transition
Key (re)insurance market implications(Re)insurance is key to helping new andemerging green technology, such as battery
storage, smart grids, hydrogen and carbon
capture, usage and storage (CCUS), reachthe investment levels necessary to support
an accelerated transition
It can provide investors and project owners/developers with the confidence needed to invest
in critical green technology, providing access tothe sectors’ risk management expertise. Battery
storage will be a key factor given the seasonalityof renewable energy in many regions.
Emergent renewable technologies, where thetechnology is considered prototypical and risks
relatively new, are not yet available at scale
As a result, the data required to support modelling
and risk pricing is limited.
Projects may be smaller scale initially. Accessto the London market’s expertise and ability tofoster innovation and create new solutions forcomplex risks can help accelerate technologies
to reach scale.
There will be a need for integration of emerging
and commercial green technologies into existing
assets and projects, awareness of new risks will
be important to understand.

Case study: The SMI Insurance Task Forceare convening the Asset Managers and Asset
Owners, and Banking Task Forces to help
provide clarity across the financial services
task forces on their distinct enabling roles,
with a view to identifying specific problems
that require a joined-up approach to shape
end-to-end financing solutions that canaccelerate progress across criticaltransition activities.

Key (re)insurance market action(s)Developing an understanding of the growth
projections and risks associated with new green
technology, and building sufficient engineering,data and analytical capabilities will be key for(re)insurers entering these markets.
The industry could look to provide multiline
solutions to ensure that coverage gaps thatmight limit technology growth are minimised
For example, as CCUS scales there will be a needfor sophisticated insurance products that provide
protection from CO2 leakage risks during theoperational phase (e.g. third party liability risk
and indemnity insurance cover from CO2 release).
IP solution products already in the market can also
be repurposed to support new IP-rich green
technology companies.
Partnership across the insurance industry willbe critical, for example developing structured
solutions or consortia. Such structures canprovide capacity to smaller projects which inisolation may not find their way to underwriting
hubs with technical expertise.
An understanding of the interoperabilityof new technologies with existing renewableprojects will be important to ensure new risks
are appropriately understood. For example,
the integration of storage/batteries into offshore
wind projects and commercial buildings could
increase BI due to the risk of fire.
Developing an end-to-end approach forfinancing crucial transition and climate
innovation activities is critical
Insurance is a key enabler as well as capitalsource in financing the transition. Crucially,
insurance can be used to make climate positive
projects investment grade – the innovative natureof new green solutions often leads to higher risk
for investors and lenders, due to higher uncertainty
and difficulties in assessment. Insurance can beleveraged to mitigate the risks and bring projects
within the risk tolerance boundaries of otherfinancial institutions. (Re)insurers also have alarge asset base to act as investors themselves.

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Implications and actions for the (re)insurance industry
Market theme: Oil and gas companies, andother companies operating in high-emitting
industries may face high pressure to transition
as the Ukraine conflict creates a greater focus
on the climate transition

Key (re)insurance market action(s)Structured solutions or consortia can provide
cover for transitioning businesses(Re)insurers have a key role to play to help
large energy companies transition, particularly
given the impact on energy supply from the
Ukraine conflict

Climate-related structured solutions can combine
risks from multiple sources into pools that together
meet ESG benchmarks such as emissions intensity
and/or temperature alignment. This can help ensure
cover is available for emission-intensive sectors
with a credible transition plan, and where the risk
appetite to provide the equivalent capacity for
low-carbon solutions does not exist.

(Re)insurers can help firms with robust transition
plans secure coverage that they may ordinarilyfind difficult to secure, helping to maintain shortterm energy supply, whilst also supporting theclimate transition.

Lloyd’s supports a sustainable underwriting
approach that continues to support harderto-abate sectors who have a credible climatetransition plan in place, which can be measured
and tracked over the years ahead

By doing this, (re)insurers can support energy
security whilst also enabling an orderly, buturgent transition

An engagement approach, over stark exclusions,can help (re)insurers leverage their influence asa capital provider or provider of risk transfer
products to encourage companies to take solid
decarbonisation actions.

Key (re)insurance market implications

This must be a transition that supports
customers as they shift to low-carbon models,
but also recognises the urgency of climate change
and avoids becoming a ‘market of last resort’ forthose without sustainable transition plans.

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Implications and actions for the (re)insurance industry
Market theme: Supply chain disruption
combined with rising prices have impacted
electric vehicle (EV) production, which may
depress EV uptake and prevent overall
climate goals being achieved
Key (re)insurance market implications
Businesses operating in the EV manufacturingsector will want to de-risk the EV supply chain
The sector can expect an increased needfor supply chain and trade disruption solutions,as well as BI/CBI cover as access to key
manufacturing components, such as nickelof which Russia is a key producer, become
disrupted. EV manufacturers will require broad
insurance protection as they look to source
materials from alternative locations.
Key (re)insurance market action(s)Innovative value-add insurance solutions canhelp to incentivise the switch to EVs
This may include the introduction of benefits
to EV policyholders, such as the provision ofpolicies for commercial fleets switching to EVs
or the provision of reduced cost charging stations
at home for private EV policy holders. Developing
partnerships through the supply chain will help
deliver such value-added incentives.

Case study: The Drive Electric scheme by Bâloise
is a good example of innovation, using strategic
partnerships to provide several value-add services
to businesses helping to make the switch to electriceasier. This includes incentives such as assisting
the setup of a home-charging station, a card
providing access to 180,000 recharging stations
across Europe, and an app that lets a user see
all the charging stations on their route.

12

Case study – Green Hydrogen: Green hydrogenis a key enabling technology for sectors such as
shipping and aviation, and industrial processes,
such as steel production. Whilst green hydrogenis typically more expensive when compared togrey and blue hydrogen, the rising cost of natural
gas following the conflict – the feedstock used
for grey and blue hydrogen – has reduced thedifferential and in some regions, such as partsof Europe and the Middle East and Africa, greenhydrogen is now cheaper then grey12. However,green hydrogen projects remain small, andinvestment is needed to increase electrolyser
scale, develop infrastructure, and further
improve efficiency. Costs still need to reduce
further, and the risks of large-scale projects
remain relatively unknown and as such,investors may be reluctant to back large,
gigawatt scale projects.
(Re)insurers can support this nascent sector
through the development of risk transfer
products that can insure existing risks
across the value chain, as well as anticipate
the risks that will arise from future large-scaleconstruction and operation projects. (Re)insurers
in the market will need to develop their in-house
knowledge and understanding of the risks
across the green hydrogen value chain, withheavy industry and engineering experience
critical, along with the need to ensure a flexible
approach to coverage and pricing, backed bystrong data and analytics capability. The
Lloyd’s market is already providing specialist
cover for safety risks associated with thetransportation of hydrogen, but demand from
customers may increase significantly over the
coming years. Lloyd’s Futureset is leading
research into the specific risks posed byhydrogen to help corporates and investors
understand the risks and potential coverageneeds. Futureset has also run an educationalsession on hydrogen as part our ‘Risk revealed’
series, in collaboration with bp.

B loomberg New Energy Finance (BNEF) 2022, Ukraine Conflict Makes Green Hydrogen Competitive

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Energy security
The Ukraine conflict has highlighted the reliance of European nations
on energy imports from Russia, with almost 40% of natural gas
consumed in the European Union originating there13.
The surge in oil and gas prices following Russia's
invasion of Ukraine has led to soaring inflation rates
and prompted significant monetary, fiscal and policy
action by governments and central banks to ensurethat businesses and consumers are protected during
this period of volatility.
Over the coming months, European nations, amongst
others, will be urgently diversifying their energy mix
away from Russian oil and gas to strengthen theirenergy security and protect their economies fromthe challenges associated with energy supply issues
and escalating prices. Whilst there may be short-termpressure on climate transition efforts as countries
look to replace Russian energy, in many regions
the desire for greater independence from fossil fuels
has been strengthened by the crisis and may further
accelerate decarbonisation initiatives. However, thiscannot be achieved quickly and will require significant
investment in infrastructure redesign and renewables.

The situation has highlighted critical dependencies inmany countries’ energy systems. Therefore, alongside
renewable energy, a mixed slate of energy sources
and suppliers could be critical to a country’s energy
security, with a growing opportunity for Europe, theMiddle East and Africa to supply Western nations aswell as a large opportunity for the US shale market,
and potentially even for historically embargoedcountries such as Venezuela or Iran, depending
on political appetite.
The insurance industry can support thedevelopment of energy independence and security,and the associated infrastructure required, throughthe provision of capacity and innovation where
protection gaps exist.

This will require significant investment
in infrastructure redevelopment, withrecent estimates suggesting European
governments will spend €50bn14 this winteron new and expanded fossil fuel infrastructure
due to the conflict.
Ember Climate for the Financial Times, 2022

13
14

New Statesman, 2022
Ember Climate for the Financial Times, 2022

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03 Key market forces influencing the risk landscape

Implications and actions for the (re)insurance industry
Market theme: A short-term jump in the useof traditional and high-emitting energy sectors,
is possible as nations seek to replace Russiansourced energy supplies
Key (re)insurance market implications
Re-commissioning of coal plants may lead to anincrease in demand for traditional brown energy
coverage in the short term
Capacity may be restricted as many (re)insurers
will have coal restrictions and exclusions in place.
For some this may involve blanket bans whilst for
many the restrictions may relate to the proportionof the organisation’s revenue generated by coal.
Even for those that don’t have restrictions in place,
supporting coal projects, and controversial oil andgas exploration (e.g. oil sands and arctic exploration)
may create a negative reputational impact.
We may also see re-commissioning or extensions
to the operational life of nuclear plants, an area
where several barriers exist to limit insurance
capacity expansion; largely stemming from thelow frequency but high severity of claims, despite
the strong safety and performance records of thenuclear industry.
Case study: Lloyd’s Futureset recently sat downwith Nuclear Risk Insurers (NRI) and EDF, Britain’s
biggest generator of zero carbon electricity to better
understand how they are working across the sector
to support the global energy transition to net zero.
Watch the video here.

Key (re)insurance market action(s)The global insurance industry has a unique
opportunity to continue to support thenuclear industry
The Lloyd’s market already provides significant
capacity to nuclear risk specialists NRI (the British
Nuclear Insurance Pool) and Northcourt (anindependent MGA (Managing General Agent)).
Where demand comes from previously mothballed
plants, or plants operating outside originallyintended lifespans, (re)insurers will need to work
closely with nuclear operators and engineers
to understand the risk implications around thecontinued safety and performance of the plant.

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03 Key market forces influencing the risk landscape38

Implications and actions for the (re)insurance industry
Market theme: Changes to the geographicalenergy supply landscape and associatedinfrastructure development are expected
Key (re)insurance market implications
Increased demand is expected in the midstream
and downstream energy sectors
This is the case particularly for construction phaseprojects, to develop the infrastructure to support
new supply routes. New supply routes may comefrom US shale, MENA, historically embargoed
nations such as Venezuela and Iran, or Liquified
Natural Gas (LNG) from areas such as the US,
Qatar and the UAE or Australia.

Key (re)insurance market action(s)Clients may seek increased capacity for LNG
and other midstream/downstream markets,with BI/CBI capacity a key area of focus dueto the disruption caused by demand shifts
and insufficient infrastructure
Within the LNG market, (re)insurers will requirea sophisticated underwriting approach and athorough understanding of the track record of
the build location, as well as understanding the
Nat Cat risks for exposed projects e.g. in US
or Australia.

The complex cryogenic equipment involved acrossthe LNG supply chain may result in large insured
exposures and therefore a cautious approach isoften taken by (re)insurers.

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03 Key market forces influencing the risk landscape

39

Implications and actions for the (re)insurance industry
Market theme: There may be an increased
demand for private - or even personal renewable energy and storage solutions
as companies seek energy independence
in the face of the high energy prices resulting
from the conflict
Key (re)insurance market implications
An increase in the number of smaller renewableenergy farms and privately owned battery storage
projects is likely to create growing demand forcapacity from a new customer group, with
farmers an important example
This would change the traditional energy insurance
market from high value, low volume to high volume,
low value.

Key (re)insurance market action(s)Collaboration across the (re)insurance sector
can help smaller risks get the specialist risk
management support needed
Brokers and (re)insurers can help bring suchsmaller risks to the London market throughstructured solutions and delegated authorities,
allowing customers to benefit from the market’s
specialist knowledge and risk transfer solutions.
The industry can also develop innovative
solutions to support uptake of private
solar energy
For example, through the inclusion of ‘build backbetter’ wordings in home insurance policies.

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03 Key market forces influencing the risk landscape40

ESG and public sentiment
The conflict in Ukraine has highlighted the broader implications of ESG,
with greater societal and stakeholder expectations of companies toreassess their partnerships and improve due-diligence checks on
suppliers and third-party vendors for any potential ties to Russia.
The crisis has also created awareness of othergeopolitical tensions, highlighting the emphasis
on wider human rights violations for all investors.
Importantly, most ESG funds do not generally
have significant exposure to Russia – with only
one sustainable emerging market fund having
an exposure of more than 4.9%15.
Western sentiment towards the conflict in Ukraine,
to date, has been heavily pro-Ukrainian. Reputational
issues and western sanctions imposed against Russia
have triggered a mass exodus of firms operating in
the country and a withdrawal of capital; as of August
2022, over 1,000 major companies and financial
institutions had withdrawn capital from Russia inreaction to the conflict. If the crisis were to escalate,
and the knock-on impacts on global economies togrow, there may be a greater need for governments
to take steps to protect against domestic politicalunrest. Ukrainian refugees may require greater support,
and countries could seek to strengthen their military
investment if the conflict continues long term.
The conflict has heightened focus and createdadditional complexities around ESG and public
sentiment, which may lead to increased demandfor PV cover and litigation, reputation and crisis
management products. There is also an opportunity
for the sector to help communities impacted by the
conflict recover and rebuild, for example bysupporting humanitarian efforts.

15

Morningstar research, 2022

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03 Key market forces influencing the risk landscape

41

Implications and actions for the (re)insurance industry
Market theme: Businesses are increasingly
aware of the consequences of reputational
damage and how it can quickly erode market
value and trust with customers and stakeholders
Key (re)insurance market implications
Demand for products such as litigation,
reputation and crisis management products arelikely to increase
In addition to risk transfer products, businesses
will seek support from the insurance industry
to help monitor, measure, and manage theirreputational risks. Business reputation has
traditionally been difficult to assess and quantify
due to the intangible nature of the risk.
Key (re)insurance market action(s)The sector can continue to develop risk-transfer
solutions to help organisations better mitigate
reputational risk and continue to explore
innovative risk management solutions
Proactive risk management solutions, suchas benchmarking and media monitoring, canhelp organisations assess risk through thelens of corporate reputation rather than purefinancial loss.

Further investment in data modelling capabilities
may help accurately quantify reputational risk andhelp address business needs. For instance, insurers
and brokers could extend their solutions to includesentiment analysis, which tracks the volume andtype of sentiment published. Partnerships withspecialist third parties could be explored where
necessary to deliver this.
Insurers and brokers could help develop
reputation risk scenarios for businesses and help
them understand both the costs associated withthe most significant scenarios and where risks
can be transferred.

Case study: Aon uses a data-driven analyticalframework to analyse reputational risk scenarios.
The three-step approach involves scenario
analysis, financial modelling, and stress-testing;these scenarios have been developed forbusinesses operating in more public-facing
industries (e.g. food, agribusiness andbeverage or life sciences).

Case study: Beazley has developed a bespoke
Reputational Risk product for consumer facing
companies and leads the Custodian Consortium
at Lloyd’s with support from other membersof Lloyd’s Product Launchpad. Its all-risks
product indemnifies companies for loss of
profits in the event of a reputational crisis withcrisis consultancy also offered as part of its
proposition. A key distinction is that the firmuses AI (Artificial Intelligence) and machinelearning to generate information about emerging
reputational threats for organisations in realtime, with the ability for them to access thisinformation via an online portal. Beazley has
partnered with Polecat Intelligence to offer
these capabilities.

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03 Key market forces influencing the risk landscape

Implications and actions for the (re)insurance industry
Market theme: The conflict has exacerbated
ESG complexities, particularly in relation to
the energy sector, and has the potential tolead to changes in public sentiment
Key (re)insurance market implications
The conflict has blurred the lines between
the separate “E”, “S” and “G” considerations.
For example, a balance may need to be struck
between the support of fossil fuel industries
to provide energy security (the “S”), with thelong-term need to foster an effective climatetransition (the “E”).
There is the possibility that the growing
cost-of-living crisis may influence changes
in public sentiment towards support for
Ukraine, as domestic pressures mount.
Complexities may also arise from a push foraccelerated renewable energy. The insurance
industry can help to avoid unintended socialand environmental consequences. For example,
batteries require cobalt and lithium, both rareearth metals that, if not extracted sustainably,
can cause large biodiversity losses and violations
to human rights.
Key (re)insurance market action(s)With ESG and public sentiment issues more
complex than ever, clients may seek supply
chain risk management services and products
to support them in understanding the risks,alongside the provision of reputational damage
solutions. This may include civil liability policies,
particularly as ESG regulation increase.
(Re)insurers can also take a comprehensive
approach to their ESG strategy, rather thanconsidering “E”, “S” and “G” as separate
components. Ensuring a best-in-class ESG
due-diligence strategy can avoid unintended
consequences, such as the potential biodiversity
or human rights issues resulting from renewableenergy projects.

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03 Key market forces influencing the risk landscape

43

Implications and actions for the (re)insurance industry
Market theme: Risk of further social unrest as
the economic challenges intensify, particularly
in developing nations
Key (re)insurance market implications
Businesses may seek greater protection tocontinue operations in the face of growing
unrest, or to reduce the potential financial
impact. Food shortages, energy supply
issues and the general cost of living crisis,
may all contribute to this risk, particularly
in developing nations that are highly reliant
on imports from Ukraine for sustenance.

Key (re)insurance market action(s)The conflict may result in greater need for clear,standalone PR/PV cover which can enable
companies to exit from deteriorating regionalsituations. A key protection gap exists within PR
and PV for SMEs with international presences,
representing an opportunity for the insurance
sector to support smaller companies with thechallenges from the conflict.

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44

Implications and actions for the (re)insurance industry
Market theme: Opportunities exist to show
support to Ukrainian refugees and the nation’s
recovery effort
Key (re)insurance market implications
The (re)insurance sector has a central roleto play in helping society build resilienceand confidence, given its influence over theoverall economy
The industry can play a vital role to help rebuild
infrastructure and supply chains in Ukraine in
the event of a de-escalation. This can not only
help the nation recover as quickly as possible
but can also benefit the redevelopment of many
global supply chains that had felt the ramificationsof the conflict. Extending support during
humanitarian crises can further help build
trust of the public in the (re)insurance sector.
Countries which have welcomed an influxof refugees may see an increase in
housing/infrastructure projects
For instance, the influx of refugees in Germany
in 2015 boosted the German construction sector
further16, and the Netherlands has also experienced
greater demand17 for new housing projects
to accommodate refugees. There may be acorresponding increase in demand for insurance
coverage in these regions during the construction
phase whilst housing is being built, and during theoperational phases.
Key (re)insurance market action(s)(Re)insurers are well placed to help governments
and companies re-build damaged property in
Ukraine, such as private residential, commercial,governmental property and energy infrastructure
Humanitarian or public sector partnerships
likely to be key, where the industry can deploy
its advisory services to support governments
and companies to rebuild with resilience in
mind, ensuring supply chains are future proof.
The (re)insurance sector can continue
providing support to Ukrainian citizens in
the form of well-designed cover to support
refugee housing projects
Poland, Slovakia, and Hungary have so far
welcomed over half of all Ukrainian refugees.
Specific propositions from the insurance
industry to support commercial housing projects
to further accommodate Ukrainian refugees(e.g. a packaged product for smaller construction
projects with broad T&Cs) would be well received.

Case study: Allianz’s humanitarian response
includes offering free insurance coverage
to Ukrainian refugees and their helpers(e.g. property and car insurance) in addition
to donating EUR 10mn in humanitarian aid.

16
17

Reuters, 2015
European Commission, 2015

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03 Key market forces influencing the risk landscape

45

Progress to date
The (re)insurance industry has already begun reacting to the conflict
and the challenges as they unfold, with a number of solutions alreadyin place to respond to emerging customer needs, yet it is also clearthat the implications for the industry are vast, with several areas
where additional action is needed.

03 Key market forces influencing the risk landscapeCurrent (re)insurance industry progress in responding to themarket force challenges arising from the conflict

Immature
Supply chain

The seven market forces analysed within this report are at different stages in their response to addressing
the challenges faced, with some areas requiring a greater call to action than others.
The diagram to the right summarises our view of the progress to date in each of the market forces, grouping
them into those that are well progressed, gaining momentum or are more immature. Whilst there are additional
opportunities to support businesses within each of the market forces, supply chain and public sentimentwill likely require the most attention.

46

The market for supply chain
insurance remains relatively
nascent. Risk transfer andadvisory solutions extending
to Tier 2 and 3 suppliers could
be valued by customers

ESG& public sentiment
Reputational damage, politicalviolence and crisis management
remain areas where businesses
are likely seek greater
protection

Gaining momentum
Cyber
Work has already begun to adapt
existing cyber offerings to suitcustomers’ needs arising fromthe conflict. Physical damage,contingent business interruption
and standalone war solutions
are examples where the industry
could take further action

Climate transition
The (re)insurance industry
has a key role to play in enabling
and financing the transition to a
low-carbon future. Further action
can help accelerate progress
across critical transition activities,
particularly the adoption of new
green technologies

Food security
Critical progress has been madeto limit the challenges aroundUkrainian grain exports. Thereis the potential for further action
around wider global implications,such as products to help scale
up domestic production

Ukraine: A conflict that changed the world – the (re)insurance industry response 

Ukraine: A conflict that changed the world – the (re)insurance industry response Well progressedEnergy security
Solutions are largely mature,with shifts in demand and thedeployment of capital the key
areas of focus for the (re)insurance industry

04
Responding
to unmetclient needs

04 Responding to unmet client needs

The (re)insurance industry has a vital role to play in building societal
and economic resilience, with access to a formidable toolkit that cantackle challenges across industries and address protection gaps:

01

02

Capital: Bringing
capital to bear

Solutions:
Addressing
emerging needs

The (re)insurance industry canhelp to build long-term resilienceby deploying its capital to remove
risks from customers’ balance
sheets and reduce their exposure
to volatile risks.

Ukraine: A conflict that changed the world – the (re)insurance industry response 

48Innovation in the sector will beessential to helping to address thecomplex challenges that will emerge
from the crisis. The (re)insurance
industry has an opportunity todevelop new products and new waysof sharing risk to help businesses
navigate what will be an uncertain
landscape for some time to come.

03

04

Risk advisory:
Becoming a truerisk partner

Collaboration: Key tounlocking action anddriving change

The industry can deploy its deep
risk expertise by providing advice
on risk mitigation and management
to ensure that customers areprepared for a range of outcomes.

Insurance is a key enablerof financial resilience, and crosssector partnerships can accelerate
the development and deliveryof the novel solutions that will
be necessary.

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04 Responding to unmet client needs

49

04 Responding to unmet client needs

1. Untapped capital
Bringing industry resources to bear
The insurance industry's global pool of more than $30 trillion of capital is critical to building global resilience.
These resources can be directed to the areas most challenged by the conflict, whether to Ukraine andsurrounding markets directly or by loosening capacity constraints intensified by the conflict. Pooling capacity
provides an effective way for the (re)insurance industry to offset the volatility and large exposures inherent ingeopolitical risk.
Underwriting hubs such as London provide a gateway for the deployment of capital and development of more
efficient placement mechanisms through structured solutions. However, investment in enhanced risk modellingand data and analytics capabilities is crucial to provide (re)insurers with the confidence to deploy capacity.

Application for key business challenges
Cyber

Supplychain

Food
security

Climatetransition

Energysecurity

ESG

Publicsentiment

High

High

High

High

Moderate

Low

Moderate

The opportunity for action
Sharing risk
The London market’s syndication model provides the ideal platform to develop, implement and sharerisk for innovative solutions that need access to capital to help address protection gaps. For example,
targeted use of structured solutions in areas where underwriting data is still limited such as small
renewable energy projects for farmers and local housing developments, emerging green
technologies such as hydrogen or utility scale battery storage
Investing in data and modelling to allow investors to confidently deploy their capital
Working closely with businesses, data providers and experts to optimise risk models and data,such as around supply chain exposure, reputational risk and cyber can offer investors greater
confidence when underwriting emerging risks where limited experience data is available.
For example, AI and machine learning can be used to provide real-time insights to businesses
on emerging reputational threats.
Supporting companies with credible transition plans
The insurance industry can support the energy transition and protect energy security through thecreation of structured solutions for ‘brown risks’ from companies with credible transition plans, aswell as supporting the establishment of captives and the provision of associated reinsurance cover.

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Taking action at Lloyd’s
Mobilising capital: Mobilising capital can help rebuild social andeconomic resilience and Lloyd’s is committed to providing an efficientroute for institutional investors to support the growth and diversityof risks written in the market. Lloyd’s has established two Protected
Cell Companies (PCCs), London Bridge Risk and London Bridge 2,that provide an access point for qualifying institutional investors to
deploy funds in a tax transparent way into the Lloyd’s market.
Sharing risk: In July, Lloyd's insurer Ascot launched a new facility
offering vessels transporting grain and other designated food products
from Ukrainian ports reliable and readily available insurance protection.
Backed by over 15 underwriting entities, the facility highlights the crucialrole of (re)insurance to navigate the effects of the conflict in Ukraine.

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04 Responding to unmet client needs

51

2. Innovative solutions

Marketplace collaboration

Addressing customers’ emerging needs

Partnership between (re)insurers and brokers, as well as across marketplaces such as Lloyd’s, cancreate conditions under which new solutions can be taken rapidly from ideation to commercialisation.

Businesses are more aware than ever of growing threats such as physical damage from cyber-attacks
and supply chain disruption and will increasingly look to the insurance industry to help transfer risk
where possible. Existing products may need to be refined to reflect evolving business needs andemerging technologies, which will require carriers to deepen their technical understanding. Moreover,standalone solutions could be developed to address growing coverage gaps and fulfil business needs.

Application for key business challenges
Cyber

Supplychain

Food
security

Climatetransition

Energysecurity

ESG

Publicsentiment

High

High

High

High

Low

ModerateHigh

The opportunity for action
Focused development of new solutions18
We can act to focus innovation on the segments of the market most impacted by the ongoing
conflict, both augmenting existing solutions and breaking boundaries in new areas, for example:− A ddressing specific needs of organisations in response to the conflict such as the availabilityof cyber war cover and comprehensive supply chain de-risking− Exploring how parametric solutions can support a wide array of challenges such as foodproduction in drought exposed regions, commodity price fluctuations, shipping supply
chain resilience as well as aid humanitarian efforts− Repurposing IP (Intellectual Property) solution products for IP-rich green technology companies− Exploring the opportunity for non-financial forms of coverage, for example crisis management
support or the provision of replacement goods

18

04 Responding to unmet client needs

Taking action at Lloyd’s
Product innovation: Lloyd’s is committed
to supporting innovation across the market
and has set up a number of facilities toensure that the market has the spaceneeded to innovate or commit capacity
to new ventures, including:	Lloyd’s Lab: an award-winning space
dedicated to accelerating andfostering new products and solutions
fit for the needs of our customers
around the world	Lloyd’s Product Launchpad: providing£150m of capacity, the Lloyd’s ProductLaunchpad is committed to providing
a safe space for underwriters toexperiment with new ideas in acontrolled way, which balances
the need for appropriate oversight withthe risk of not innovating fast enough	Innovation class of business GWPtargets: allowing syndicates to commit
an additional 2% of their Gross Written
Premium (GWP) from their businessas-usual plan to a dedicated innovation
class of business
Action leadership: Lloyd’s Futureset canhelp to strengthen the sector’s technicalunderstanding of risks emerging from thecrisis through leading research and action
leadership. Ongoing examples of work
include studying the specific risks posedby hydrogen to help corporates andinvestors understand the risks andpotential coverage needs.

N.B. the proposed innovation ideas identified in this report should be reviewed from a legal and regulatory perspective as part of the product development process.

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04 Responding to unmet client needs

53

3. Expert advice

04 Responding to unmet client needs

The opportunity for action

Becoming a true risk partner for customers

Understand the customer needBusinesses require more support than ever to navigate an increasingly volatile risk landscape. This provides
opportunities for the industry to offer greater value to clients through proactive risk management advice andcapture an estimated $2bn market for value-added services in commercial lines insurance19. (Re)insurers canbuild long-term relationships with customers based on a detailed understanding of their risk profile and needs,
which should translate into improved loss performance.
Additional investment in building core capabilities in pre- and post-loss services can build a holistic
value proposition which can elevate the relationship between client and insurer. Further investment
in modelling capabilities will be required to support the better quantification of risk and the impactof natural catastrophe events for more nascent risks. Partnerships with brokers and third parties may
be required to deliver these service offerings.

Application for key business challenges
Cyber

Supplychain

Food
security

Climatetransition

Energysecurity

ESG

Publicsentiment

Moderate

High

High

High

Low

Low

High

Organisations are bringing their expectations of customer experience from other industries,
like banking, to their insurers and brokers. They increasingly demand solutions and support
that are bespoke to their needs. Across the insurance value chain, the aim should be to build
a comprehensive view of the customer. This could require a culture change across the business –from sales through to claims – to provide the flexibility and agility to deliver value added services
that customers truly want and need.
Invest in technology, data and analytics to deliver valued services
The use of big data and AI can increasingly help insurers and brokers provide compelling solutions
across many services, including risk mitigation, risk assessment and claims. Insurers and brokers
are already making great strides in these areas, including Beazley’s Reputational Risk product, whichleverages AI and machine-learning to generate real-time insights on emerging reputational threats.
However there are further opportunities for the industry to respond to changing customer needs,
for example geospatial supply chain health checks could be further offered as part of a risk advisory
proposition, or NatCat early warning systems could be further used to model the effect of droughts
on already impacted food supply chains.
Crisis response
The conflict in Ukraine has highlighted the broad reach of crisis events, and businesses are now moreaware that a professional approach to crisis response is required to limit future risks. The insurance
industry is well placed to support clients in the event of a future crisis through supply chain advice,legal and public relations support.
In addition, the industry could explore the potential for new non-financial based indemnity solutions,for example, helping to source alternative raw materials where supply chains have been disrupted
or providing replacement carbon credits where previously purchased offsets have not delivered
as promised.

19

McKinsey, The hidden benefits of value-added services in commercial lines insurance, 2019

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04 Responding to unmet client needs

55

4. Collaborative action

04 Responding to unmet client needs

Taking action at Lloyd’s

Casting the net wide to innovate for customers
In many areas the value chain of the insurance industry promotes a highly collaborative environment. However,the sheer number of players within the value chain can create barriers at times, due to interdependencies
through the value chain. As such, the insurance industry can look beyond these obstacles and use this an
opportunity to drive collaboration and innovation across the sector.

Application for key business challenges
Cyber

Supplychain

Food
security

Climatetransition

Energysecurity

ESG

Publicsentiment

Low

Moderate

High

High

Moderate

Low

Low

The opportunity for action
Involve customers throughout theinnovation process

Innovation and collaboration mustbe ‘resourced for success’

Engagement with customers is often limited
to the product prototyping stage. A piloting stage
could be used more powerfully if the needs andviews of prospective customers are factored into
insurance product design at the outset. This also
applies to customers: involving insurers early
during the development of new emerging
technologies means they will be better placed
to understand the potential risks and controls
in place to manage them.

There is contrast between a commitment
to resource innovations while only committing
resources after an innovation has been developedby an employee “at the side of the desk”.
The insurance industry could work to ensurethat employees are given sufficient time awayfrom their day jobs to develop the innovation
when it is in its infancy. Innovation also requires
a long-term attitude, in contrast to the one year
horizon of a P&L. A long-term approach can help
to reduce barriers that act to create inflexible
and static business models.

Build a broad platform to capture, selectand implement innovations(Re)insurers and brokers that have an innovation
platform have been shown to consistently produce
a wider range of new products. Innovation
performance could be enhanced through theintroduction of permanent innovation platforms
to help capture, select and manage innovation.
Lloyd’s Lab is a good example of such a platform,
dedicated to fostering and accelerating innovation
by bringing together InsurTechs, start-ups
and ideas.

Convening the industry: Lloyd’s has brought
together leaders from a number of the largest
and most influential global insurance firms
to form an Insurance Task Force (ITF) as partof the Sustainable Markets Initiative. The task
force will drive progress as a group andaccelerate the pace of industry transitions
towards a more resilient and sustainable
future, putting 'Nature, People, Planet'at the heart of global value creation.
 eading our market: We have committedL
to work with managing agents on their own
ESG plans to achieve an overall net zerounderwriting position for our market by
2050. To support this, 2021 saw us issuecomprehensive market guidance, coveringboth underwriters and investment to help
managing agents in forming these plans.
 haring risk: The Disaster Risk Facility
S
at Lloyd’s was formed to look at closing
insurance gaps around the world throughdevelopment and provision of contingent risk
financing solutions to mitigate the human andfinancial impacts of natural hazards and othercatastrophic risks. Seven Lloyd’s syndicateshave joined forces to develop new solutions
alongside governments, municipalities, andnon-governmental organisations. Their aim
is to help developing economies tackle
underinsurance and improve their resilienceagainst the economic impact ofnatural catastrophes.

Collaboration with governments
Full potential of the insurance industry’s support
for the real economy also relies on a conducive,
agile and open regulatory regime and the industry
stands ready to co-operate with governments
and relevant authorities to facilitate this approach.
This includes, for example, insurance for new
technologies supporting green transition andutilisation of data to develop innovative risk
mitigation and transfer solutions.

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05Conclusion –converting
insight to action

05. Conclusion – converting insight to action

Having assessed the impacts of the conflict on global businesses in our first report; this second
report focuses on both the varied implications for the insurance industry, and the compelling
impetus for further action as an industry that addresses customers’ short-term critical needs
as well as equally important long-term objectives.
Across the seven market forces analysed, four consistent themes emerge. The first is the needto develop and strengthen the existing products most likely to see increased demand in the wake ofthe conflict. This includes business interruption products to help customers respond to shifts inenergy demand and infrastructure; political violence coverage to account for social unrest andfood insecurity in politically volatile regions; and reputational risk solutions for businesses seeking
to respond to shifting ESG priorities. Of the challenges that customers are facing, protecting against
supply chain and public sentiment risks will likely require the most work: in general terms, current
supply chain insurance products typically neglect Tier 2 and 3 suppliers, while cover for reputational
damage remains broadly immature. Here, the industry must play a proactive role in helping customers
understand both their exposure and their coverage to ensure the right solutions are put in place.
Secondly, the report highlights the need for rapid innovation to provide cover for new and emerging
risks. While impossible to know exactly what issues will emerge, early examples include the growthof technology and infrastructure to support the increased demand for renewable energy; the threat
to physical assets from the recent rise in cyber-attacks; and supporting products to ensure the safe
shipment and settlement of perishable products from Ukraine and surrounding regions. Again, acustomer-focused approach will be most effective in identifying both needs, solutions and innovations.
Third, the research reveals the need for investment in data, analytics and risk modelling to makeinsurance solutions cost effective and fit for the digital world. Robust data and modelling could
improve (re)insurers’ ability to anticipate a range of risks from cyber-attacks to reputational risks,
making the industry better equipped to support customers as they respond to the conflict.
Finally, the potential benefits to (re)insurers of looking beyond their own borders are clear. Cross-industry
partnerships have proved their worth in insuring a range of large risks from grain shipments to cyber
physical attacks, and could prove valuable for as yet uninsurable risks surrounding the climate transition.
Collaboration with government and humanitarian organisations opens doors to address food insecurity
and help affected societies recover and rebuild; while close relationships with customers will be essential
to building proactive resilience on everything from company reputation to cyber mitigation. The industry
must therefore partner broadly across its networks to realise the benefits of collaboration in mitigating
the conflict’s many impacts.
In these efforts, the insurance sector must continue the work already started: mobilising its deep risk
expertise to help businesses navigate the uncertainties of the conflict; facilitating the deployment of
capital to the areas that need it most; and supporting innovation to cover the risks yet to be insured.
To support this process Lloyd’s and Aon will establish a new innovation forum that will help coordinate
and accelerate the development of new solutions.
In practical terms the innovation forum will bring together senior leaders from both Lloyd’s and Aon
across a variety of key areas that have been highlighted in this report where protection gaps exist andnew product development is required. The role of the innovation forum will be two-fold; firstly to act asa convenor for businesses, underwriters and brokers to come together and debate the recommendations
from this report, and challenge each other to find additional ways to meet unmet needs. Secondly, theideas developed within the innovation forum will be brought to life through the underwriting and productinnovation expertise at Lloyd’s through existing mechanisms including the Sustainable Markets Initiativeand Lloyd’s Lab. The initial focus of the innovation forum will be on three key topics where the Ukraine
crisis has exacerbated the challenges facing businesses: energy, cyber and supply chain.
Beyond this initiative, the need to move quickly to help customers respond is evident. This research
outlines the tangible steps insurance and reinsurance organisations can take to support society
at this pivotal time; but it is only as effective as its application. The real work is in converting thoseinsights into action.

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References

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Supply chain
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Food security
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61

Climate transition
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wake%20of%20the,years%20to%20plan%20and%20build
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ESG and Public sentiment
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Ukraine: A conflict that changed the world – the (re)insurance industry response 