As winter approaches, the UK insurance sector is preparing for a dual challenge – ongoing global supply chain interruptions and the impending impact of severe winter weather. Gordon Vater, managing director at GB Technical, provides an overview of the situation
The global supply chain has been under significant strain due to several factors. These include:
- Shipping bottlenecks – Major ports, including those in China and the US, have experienced congestion. Disruptions in the Suez Canal and Red Sea have further limited movement, leading to delays in the transport of goods and increased shipping costs. This results in higher insured values and potentially higher premiums.
- Raw material shortages – The Covid-19 pandemic caused a shortage of essential raw materials, affecting delivery and production timelines across various industries, including construction. This is an important consideration because demand for building supplies is likely to increase due to necessary weather related property repairs.
- Labour shortages – A global shortage of skilled labour, particularly in logistics and transportation, has exacerbated supply chain strain. In the UK, skill shortages now cost the economy £39bn a year, impacting transportation, shipping logistics and the construction workforce integral to property claim settlements.
These compounding circumstances have significant implications for the UK insurance sector, regardless of the season. However, with a very wet and cold winter forecasted, a new set of related and isolated challenges presents itself. These winter weather challenges include:
- Property damage – Severe winter weather can lead to property damage from snow, ice and freezing temperatures, resulting in an increase in property claims. This may be intensified by a lack of available materials for repairs and shared labour shortages.
- Business interruption – Adverse weather conditions can disrupt business operations, leading to potential business interruption (BI) claims. Shipping delays are likely to increase BI claims, especially for companies relying on just-in-time inventory systems.
- Travel disruptions – Winter weather can cause travel delays and cancellations, impacting travel insurance claims. Air freight may also be disrupted, escalating the already delicate situation in the global supply chain.
- Health risks – Cold weather can exacerbate health issues, potentially leading to an increase in health insurance claims and a further decreased workforce.
There are a number of steps insurers can take to prepare for these dual challenges. These are:
- Accessing the right talent – Increased claims volume means that adequate resourcing is crucial. Partnering with a claims specialist can help better manage claims surges without overinvesting in full-time talent.
- Underwriting expertise – Reviewing underwriting criteria to account for severe winter weather and major supply chain disruptions is essential. Underestimating ongoing threats will not serve the bottom line well.
- Strategy reset – Reassess risk management strategies for clients, focusing on supply chain resilience and contingency planning that is supported by outside expertise with specialty knowledge. New risk models may be required for severe weather contingencies, offering specialised cover for climate risks or promoting sustainable practices.
- Upgrade the customer experience – To handle increased claims volumes, invest in user friendly websites, mobile apps and self-service portals to provide easy access to policy information, claims filing and customer support.
- Adjust policies and premiums – Sometimes adjustments to policies and premiums are necessary. Customer service specialists can help end customers understand these changes.
