How insurers can support resilient recovery

Being at the helm of a business has rarely been tougher.

From climate risk and cyber security to large-scale industry disruption: the pace of change is accelerating, and the risks multiplying. A recent survey of business leaders found the rate of change faced by companies reached a high in 2023 and is only set to increase further.

These changes are already affecting business performance today and will have the potential to make or break fortunes well into the future. Research shows that resilient businesses not only outperform their peers during crises, but that the outperformance widens even in better times.

Clearly, building a resilient business should be top of mind for executives. But preparing for a future that seems impossible to envisage is easier said than done.

A recent survey of executive and senior leadership professionals in advanced industries, such as tech companies, revealed that many leaders do not feel fully prepared for future disruptions. According to a 2023 McKinsey survey, less than one third of survey respondents felt fully prepared for future disruptions, with the remainder feeling partially prepared (44 percent) or even underprepared (25 percent).

The good news is that the insurance sector can play a critical role in building resilience and preparedness. The insurance sector can provide advice on risk mitigation or adaptation measures and help companies survive and bounce back from setbacks more quickly. They can further provide access to data and detailed risk assessments to help leaders anticipate risks and build innovative solutions. Better understanding of the risks can support more informed decision-making and more robust business continuity planning. As such, the insurance industry is playing an increasingly important role in supporting the business community.

A new era for risk assessment and management

Climate change is already a major concern for many leaders. Business leaders regularly cite extreme weather events, threats to Earth’s systems and biodiversity loss as key priorities. Indeed, these three risks appeared in the top three ten-year risks highlighted by leaders in the World Economic Forum’s 2024 Global Risk Report, which was developed, among others, in collaboration with Zurich Insurance Group (Zurich). In 2023, the US alone experienced 28 weather and climate disasters, causing losses of over USD 92.9 billion. Perhaps less well known, however, is the role that the insurance industry can play in helping to prepare for more extreme weather as opposed to simply dealing with the aftermath.

Whether it's supporting customers with their transition to more climate-friendly approaches, the sector can support clients in a range of ways, from a traditional risk transfer perspective to risk engineering.

How insurance can be part of the solution

Sophisticated risk scenario approaches can help companies reduce uncertainty by assessing the likelihood of trends that develop gradually, as well as shock events which arise suddenly. Approaching risk assessments in this systematic way helps managers map how diverse risks may impact an organization or sector, and probe how resilient these systems are to potential disruptions.

Through Zurich Resilience Solutions (ZRS), Zurich supports its customers with data-led risk engineering and risk management services.

Improved industry collaboration is also leading to more support for companies across the range of climate risks. For instance, ZRS is collaborating with KPMG Switzerland to provide comprehensive climate change advisory services where ZRS assesses physical risks and KPMG transition risks.

A priority for sectors feeling the heat

For Danish logistics company Maersk, whose footprint extends to 343 ports and terminals in 121 countries, handling the impacts of extreme weather events has already become a fact of life. Indeed, the company identified climate change, encompassing both physical and transition risks, as the biggest threat to its business in a company enterprise risk management (ERM) exercise.

From flooding in New Jersey and Oman to tropical cyclones in India, ports are among the most vulnerable sites in the world to climate risks. Extreme weather can damage port equipment and supporting infrastructure, such as electrical substations. Damaged infrastructure has a knock-on effect on business continuity, incurring further costs as parts and goods can no longer flow through supply chains.

To illustrate the scale of the challenge across multiple sectors, the Potsdam Institute for Climate Impact Research (PIK) estimates economic losses could reach USD 38 trillion in 2050. This makes proactively assessing and mitigating climate risk a business priority. When it comes to planning and mitigating risks, access to the highest quality data is key.

How policymakers and communities can benefit

Communities can also benefit from improved climate resilience assisted by the insurance sector. Zurich is working with Madrid City Council to identify and quantify its exposure to short- and long-term climate risks. This will help the city chart a course and adapt to its changing climate over the decades to come. With climate adaptation becoming a growing priority for the city, there will be further changes to the built environment. For example, green spaces will be expanded, along with greater use of more reflective building materials. A greater focus on these kinds of public-private-partnerships can improve climate resilience, raise awareness of climate risks and develop practical solutions to protect citizens around the world.

While climate risks loom large, companies can also benefit from enhanced risk assessments of cyber threats. In the 2024 Global Risk Report, cyberattacks were cited as a major concern for government and private sector respondents. AI advances could further fuel cyber vulnerabilities. According to recent estimates, Fortune 1000 companies already have an estimated 25 percent probability of being breached. Breaches can be catastrophic, especially for smaller businesses, where severe attacks can even cause them to collapse within six months. But these are threats that can be managed: as well as providing cover to protect firms, the insurance sector can help companies reduce their cyber risks and prevent incidents happening in the first place by providing risk assessments, training and auditing. Zurich's Cyber Resilience and Insurance services offer tailored solutions to companies of every size.

Building more resilient companies and communities requires transformation –new ways of working, more collaboration, education and greater preparedness, based on a more granular understanding of risk, which the insurance sector can help with. A holistic risk management approach can help to tackle challenges before they materialize, to meet tomorrow prepared and lay down the foundations for a more resilient world.