A shifting economy has moved the risk landscape, but new insurance products have the risk transfer answers

Structural changes in the economy create new risks such as supply chain disruption, but new insurance offerings can make risk transfer more efficient, according to Swiss Re.

The latest sigma study, Commercial insurance: innovation to expand the scope of insurability, is about the innovative risk transfer solutions available to cover the ever-evolving range of exposures that companies face.

To meet the needs of a service economy, new products are being developed, improving insurability and expanding the scope of insurance in risk management, according to the study.

“New types of solutions are providing protection against a wider range of perils, and extending insurance cover from tangible to intangible assets,” said Kurt Karl, Swiss Re’s chief economist.

To illustrate Karl’s point, the example given was of holistic covers combining multiple risks and/or interdependent triggers, allowing better alignment to the specific risk transfer needs of an insurance buyer.

“In addition to offering coverage for multiple risks, holistic solutions offer efficient risk transfer given their focus on the joint distribution of all risks,” said Karl.

Corporate risk management is becoming more sophisticated as a necessary response to the changing risk landscape from structural changes in the business environment, Swiss Re claimed.

Firms are transferring risk through financial instruments in order to reduce costs associated with financial distress, and to safeguard cash flow and thereby investment projects.

However, they are also using novel risk transfer solutions to create value by lowering the cost of capital and to reduce earnings volatility. New covers will expand the scope of protection products by enlarging the boundaries of insurability and also the role of insurance in corporate risk management, the study added.