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Asset Management / Wealth Management
‘Slowbalization’ poses new risks for insurers
Strategic agility is key to managing volatility and unlocking opportunities in a fragmented global economy
The Asset   20 Jan 2025

The global economy is shifting from integration to fragmentation as nations prioritize security and resilience over efficiency. This trend presents enormous implications for the insurance industry, a new report finds.

The 2007-2008 financial crisis marked a turning point in global economic liberalization. It prompted the rise of anti-globalization and populist movements and significantly slowed down the steady growth of cross-border trade and foreign direct investment flows that had gained momentum since the 1980s. Recent global upheavals such as US-China trade tensions, the Covid-19 pandemic, and the Russia-Ukraine war have further accelerated this fragmentation.

As a result, capital has increasingly gravitated within geopolitical blocs, prompting a restructuring of global supply chains via reshoring or “friend-shoring”. While these strategies may reduce geopolitical risks, they come at the cost of efficiency, ultimately raising production costs and consumer prices, according to Insurance in a Fragmented World Economy, published in January by the Geneva Association, a global alliance of insurance companies.

Combined with restrictions on cross-border flows of goods, services, and capital, geoeconomic fragmentation could lower GDP growth in some countries by up to 12%. Declines in cross-border trade and investment, compounded by technological decoupling, risk creating a stagflation environment characterized by higher inflation and lower economic growth, the report says.

For the insurance industry, this geoeconomic fragmentation or “slowbalization” weakens multilateral collaboration on global risks such as climate change and pandemics; narrows opportunities for risk diversification in both underwriting and investments; and creates operational hurdles from divergent regulations, it says.

At the same time, it presents growth opportunities for insurers and reinsurers in areas such as political risk and renewable energy insurance.

The report paints several “slowbalization” scenarios and suggests how insurers may respond to them. In one scenario, for example, the report envisions an exacerbation of geoeconomic fragmentation due to trade-war-like measures, where escalating protectionism leads to more volatile global cross-border flows and supply chains.

In such an environment, insurers will need to address heightened risks related to trade disruptions, with increased demand for products covering trade conflicts and retaliatory measures. Underwriting must adapt to the unpredictable nature of escalating trade barriers, requiring dynamic risk assessments and stress tests, the report says.

Capital management may require redeployment of funds to less exposed regions. In asset management, defensive strategies will dominate, with increased allocation towards markets insulated from geopolitical conflicts, such as non-aligned nations, it adds.

“While full-scale deglobalization remains improbable, insurers face rising challenges – from greater exposure to climate and cybersecurity risks to less scope for diversification in underwriting and investment management. Strategic agility will be key to managing volatility and unlocking new opportunities in this evolving environment,” says Kai-Uwe Schanz, director, macro and geoeconomic shifts, at the Geneva Association and author of the report.