Singapore:
Rising US-China trade tensions and the sudden appearance of COVID-19 has triggered a slow shift towards improving the resilience of the global supply chain over the past few years and estimates by the Swiss Re suggest the emerging parallel supply chains will generate around $1 trillion from additional exports and investments globally, boosting growth and adding $63 billion from insurance premiums over a five-year period.
“Yes, supply chain changes are happening, they are real, and I think in the bigger picture this is positive.There are real opportunities during the transition. The insurance industry has a growing opportunity to offer cover in areas such as business interruption (BI), also contingent BI and non-damage BI’’ said Jerome Jean Haegeli, group chief economist, Swiss Re, said while speaking at a session on “De-risking Global Supply Chain: Strengthening Resilience in a time of Disruption”, during the SIRC 2020 Re-Mind virtual conference on Wednesday.
“The estimate of $63 billion of insurance premiums over a five-year period is significant and definitely on the very conservative side—for example, it doesn’t include the innovation which is likely to happen and which will also drive insurance demand and insurance premiums,” he said a panel on supply-chain risk
, “Parametric solutions could also be more in demand because it allows a much more simplified and a transparent process,” Haegeli added.
Haegeli said that while medium-term global growth is expected to increase, longer-term economic growth looks set to be adversely affected.
“We should also remember that before COVID-19, we were in a weak economic environment and the resilience of the supply chain was weaker, when compared to the 2008 financial crisis,” he said.
“It is probably worth it to be more pessimistic when looking at the world’s economic growth because things will not go back to normal even if we have a vaccine. The structural damage has been done and the system we are living in is also changing.”
He said negative interest rates create a very challenging environment on the asset side and for inflation expectations, which means insurers have to watch out for claims inflation.
According to David Piesse, chief risk officer and member of the advisory board for cybersecurity and blockchain company Guardtime,what is needed is end-to-end supply chain digitisation,the failure of supply chains due to the impact of COVID-19 will accelerate the digitisation of supply chains, he said.,
“We need a complete new viewpoint from where can see everything going on upstream and downstream from the supply chain and have provenance—meaning we have trust in and understanding of the data right the way through—to enable us to provide evidence, in this case for the insurance industry, as to what has gone on in that supply chain should a liability occur.” he explained.
Supply-chain visibility was highlighted as an important factor in improving resilience by DHL Resilience 360 product director, risk monitoring Shehrina Kamal.
“Most companies tend to have generally good visibility up to the first tier of their supply chain, but most of the disruptions occur in the deeper levels. The importance of acquiring the data of where the disruptions are happening, and to have it on hand when making decisions, is extremely important,” she said.
It is abundantly clear that supply chain disruption will not go away. There might be a pandemic this year and a natural disaster next year, but the core is to be truly resilient and, even if there is another black swan event, be able to cope with that, she cautioned..
“We’ve been doing a lot of work helping clients to understand what supply chain resilience really means, and what they can do to implement some of those strategies in their supply chains and be more agile in the face of disruption,” Kamal said.
“For example, if there is a lockdown in a certain country causing a manufacturing or sourcing problem, what can you do to mitigate the impact? It’s also about considering strategies such as alternative sourcing or using multimodel solutions for transportation.
Given the many filings for insolvency in aviation and shipping companies over the past nine months, Kamal also pointed out that companies should keep tabs on their supply-chain partners and discover how they might be affected by recessions or other economic conditions that might prevail in the countries they operate in.
“It’s an important aspect of visibility, keeping an eye out on your supply chain and moving in to take action even before one of your partners becomes insolvent,” she said.
Swiss Re head of public sector solutions APAC Vincent Eck said that governments in the Southeast Asian region have been paying more attention to and establishing (re)insurance protections as a solution for financial preparedness in case of future disasters.
“However, the more optimal solution would be investing more time and money into better understanding and better modelling of the impact of climate change on the economies, the communities and the governments themselves.We are still missing the modelling capacity and a lot of the data. Governments do have these data and through PPPs and open, constructive discussion we should ultimately get this information we need,”he said.
According to EU-ASEAN Business Council chairman Donald Kanak, global business sentiment ranked ASEAN as the location with the greatest opportunity. “Our survey this year had 53% ranking ASEAN number one, with the next closest region being China at 14%,” he said.
Forty seven per cent of survey respondents also admitted to considering reorganising their supply chains – and amongst those, 34% were looking towards ASEAN for their supply needs. Interestingly, Europe came in second at 20%, with Kanak saying that it reflected a trend towards reshoring and ‘greening’ of supply chains.