While inflation and trade volatility are high on the agenda at Monte Carlo this year, an additional theme that holds significant interest to risk modeller and connected risk specialist Russell Group is deglobalisation—the fragmentation of a world that recently seemed to be getting smaller, but is now also becoming more complex.

Russell Group founder and chief executive officer Suki Basi highlighted the effects of the Russia-Ukraine conflict but also pointed to earlier roots in the Arab Spring and the UK’s departure from the EU. All of this has brought an added layer of complexity to connected risk, and he sees the re/insurance world as being squeezed from several directions:

“The changes the last two to three years have created more uncertainty and more volatility in the environment, which is creating a cocktail which I don’t think has occurred before,” Basi said.

“We have increasing values—whether it’s inflationary or not, the values are increasing. The trade data over a 10-year period post the credit crunch to just before the COVID-19 pandemic almost doubled in value, and we don’t see the insurance industry doing the same thing.”

Over the same period premiums have not increased in step with trade values. In addition, the industry has been tested by factors such as the pandemic, aviation grounding, the opioid crisis with its attendant uncertainty about settlements, and emerging risks such as cyber. On top of this, some claim awards—for example for transportation claims—have been very large, creating additional concern.

“That creates a landscape we haven’t seen before, or at least recently,” he said. “Possibly the last time was 20 years ago in 1992.

“I see the industry at a crossroads, on one hand looking down that route of wanting to underwrite uncertainty, while the other takes us down the digitisation route that commoditises the insurance product.”

When modelling in any line of business the Russell Group begins from the corporate industry end, working with different data vendors to look at the underlying business landscape, then overlaying the insurance products. Looking to the future, Basi anticipates that the next asbestos-type scenario could be cyber, where losses have hit worrying highs in two years out of the last five.

He noted that the industry does not have the premium to cover these levels of losses, and added that some corporates feel cyber insurance does not cover businesses in the way it should and are considering omitting it when it is not mandated.

“If it continues to be mandated, there is always a role for insurance but if it’s not mandated then there is the argument that if it doesn’t address the business need, what role is insurance playing?” Basi concluded.