Briefing: Risk landscape reveals that industry still faces new year uncertainty

January is a time for the UK insurance industry to take stock of where it is and, more importantly, where it is heading.

The 1 January reinsurance renewals provide insurers with an indication of the costs they will bear for reinsurance.

This year has been a brutal renewal period, which will leave insurers facing not only higher costs but also increased retentions – referring to the amount of risk that a cedant is willing to pay out of its own account for any policy, risk or group of risks.

The talk emerging from British businesses is that they are battening down the hatches.

Economists at the International Monetary Fund and the World Bank have warned that a recession is coming and that the UK will see a deeper recession than any other economy in the G7 – this includes Canada, France, Germany, Italy, Japan, the UK and the US, as well as non-enumerated member the European Union.

Insurer Aviva is due to release the results of its annual Risk insights report next week (19 January 2023) - while the contents of this project are strictly guarded, it is highly likely that economic uncertainty will be seen as a major threat to businesses’ future.

Also next week, the World Economic Forum will release its annual Global risks report, which provides a definitive analysis of the top 10 risks that businesses believe they face in the year ahead.

Climate change and the resultant impact on business continuity has been marching up the risk register in the past decade, but it is likely that this year - as the war in Ukraine continues to intensify - that political risks and the fragility of the global supply chain will occupy many of the headlines.

Economic woes are not far behind in business leaders’ minds.

This month will end with broking trade association Biba revealing its manifesto for 2023.

This year, the annual document’s publication arrives against the backdrop of Biba’s long-awaited report that will reveal its members’ feedback on insurers’ service levels.

Uncertainty remains

All this new year speculation and risk management planning comes at a time when the insurance market is still looking to understand the full implications of the UK government’s transformation of financial services regulation – although this was initially announced at a high level back in November 2021, the exact details have still not been released.

The price of raw materials is set to increase too, while the price of energy is still providing a clear threat to the ability of thousands of UK businesses to continue to trade – despite prices falling in the wholesale market.

The Bank of England, meanwhile, is continuing its fight to keep a lid on rising inflation. If there is a silver lining, economists believe that the rate of inflation will fall in the coming 12 months.

Factor in concerns about a wave of a new Covid-19 variant and the ongoing impact of climate change and it leaves the direction of travel for the insurance sector as uncertain as that of the wider economy.