Managing the dangerous enterprise of coming into new markets
It was this increasingly complex environment that pushed The Hartford to launch its new Global Specialty Insights Center this year. The center’s team of analysts has been tasked to help underwriters and brokers navigate this period of heightened uncertainty.
“These experts are advising and consulting with our underwriters on how to navigate their portfolios, and with our business leaders on how to look into their strategies and readjust for the inflationary environment and geopolitical risk,” Adrien Robinson (pictured above), head of global specialty at The Hartford, explained.
Shailesh Kumar (pictured below), head of economic and geopolitical risks at The Hartford, is leading the team in its critical work.
“Supply chains are disrupted and continue to impair businesses, while inflation continues to be a challenge. These are all amongst subjects that we can speak to our clients about to help them unlock more value and figure out how they want to handle their existing operations or their entry into markets,” Kumar told Insurance Business.
Businesses particularly want insight into geopolitical risks, such as the conflict in Ukraine, as economic repercussions from ongoing violence reach far and deep into many lines of business.
“We’re very much focused on how this war is affecting the movement of goods,” said Kumar “There are regions that are no longer exporting and there are regions where demand for import has gone up. The cost to ship goods has also risen on the back of rising commodity prices and ongoing displacement since the pandemic.” He noted that with price pressures remaining elevated for commodities like food and energy, part of the center’s work is bringing these trends to clients’ attention.
The center also scores dozens of countries on various risk dimensions, highlighting areas of opportunity and challenge for businesses. These reports track countries’ individual risk profiles, but Kumar stressed that while working with clients, these scores are put in broader context. A business with significant exposure in Vietnam, for instance, seeking insights on its political environment and business outlook must also consider its place and relationships within the Southeast Asian region.
“It’s impossible to just analyze a country on a standalone basis. Having a conversation about Vietnam can’t be done unless we talk about China, the South China Sea, and what’s transpiring there,” Kumar illustrated.
Plotting out the first-, second-, and third-order effects that clients can anticipate from an event also enables clients to identify risks at every stage, according to Kumar. He cited ballooning food prices as an example: “First, how does that filter down into the performance of countries from a fiscal standpoint, as countries need to pay more for their food import? What should we be aware of?
“Second, what does that then mean for the state of political violence around the world? Food inflation historically has led to challenges in countries. There have been numerous instances where elevated food prices have led to governments collapsing or a revolution. There are already some indications around the world where there is some shakiness on that front,” Kumar continued.
“Then we think beyond that: what does this mean for the geopolitical landscape five years out? What does it mean for the rise of new power centers around the world? How could that affect trade flows?”
Shifts in globalization
The last few decades have been marked by almost unfettered globalization, but a realignment of the global world order is emerging, according to Robinson. The Hartford’s Global Specialty Insights Center is positioned to support business leaders through this volatile period.
“Businesses may be thinking what that realignment may do to the global supply chain, to shipping routes, trading partnerships, economies, and currencies. There will be adjustments as different factors pop up, but the world is moving more towards fractionalization and different types of political alliances. We can provide a lens to see how those scenarios will play out,” said Robinson.
The Ukraine war is accelerating those shifts in global power, Kumar said: “The conflict has exposed fault lines around the world. It has also highlighted the fact that a lot of countries are looking to rise. The rise of alternative power centers, along with various policies and economic decisions taken on the back of the war, will likely further this effort.”
Some possible consequences to this power shuffle include more localized trade and increased national security spending. Trading partners might be more selective, which will affect trade flows, creating implications for marine lines of businesses. Debt, distress, and debt solvency could be affected by this as well.
“We’re seeing some real cases play out today, such as Sri Lanka, which has gone into technical bankruptcy. This will have material implications for credit lines of business, for example,” Kumar said.
“All these factors are ultimately linked, and this is the type of analysis and insight we’re trying to piece together for our clients. We go layer by layer to figure out what’s happening at the country level, and how that will that affect you as a business.”
Armed with these insights, clients can then seek appropriate insurance coverage. Robinson said: “If they’re looking to expand into one of those countries, they can come to us and procure one of those policies, such as for political violence and terrorism, that will help ease some of this risk.”
“We’re giving them everything they need to know from an intelligence standpoint. But then the underwriters are also providing them with tangible solutions to help facilitate their entry into these markets,” added Kumar.