Innovation across the Lloyd’s market is not always at a narrow product level. There are times when global trends drive a top-down strategic rethink of how the insurance industry must evolve to serve its clients and help to better protect them.
“We can do detailed research, but it can be difficult for us academics to see what real change we can bring. For Lloyd’s to take that work and then run with it to find solutions, is a great opportunity for all sides.”Tamara Evan - Lead, Business Risk Science, Cambridge Centre for Risk Studies
That’s the purpose of Lloyd’s Futureset, a global platform and community dedicated to driving greater societal and economic resilience to the world's most challenging systemic and emerging risks.
The Futureset team select a rotating series of topics to study in depth to build up market-wide expertise on each topic through a connected series of research, reports and events. This work is often with expert partners.
Geopolitics is one of the latest areas where research has been undertaken, in partnership with the Cambridge Centre for Risk Studies (CRS). As Tamara Evan, who leads the Business Risk Science team at CRS says: “Geopolitical turbulence and associated geopolitical risks have rarely been part of the multinational corporate conversation in the last two generations. But in the last few years, geopolitics has become much more significant and has begun to disrupt modern supply chains.”
With this in mind, the Lloyd’s team ran an eighteenth-month campaign to explore the key geopolitical issues for corporates. They examined some of the possible scenarios that might arise, and to take this debate further by looking into the insurance products that could take the strain out of these large-scale uncontrollable new risks.
As a first step the Lloyd’s innovation team identified the major risks that required more in-depth analysis. The Centre and Lloyd’s collaborated on a report, ‘Shifting Powers: Meeting the challenges of the geopolitical landscape’, which discusses the transformation of the geopolitical risk landscape over the last 10 years and focuses on ten major themes that define geopolitical risk today. These include political change, social unrest, conflict and terrorism, migration, cyber-attacks and the new arms race, and the politics of climate change.
For each theme the researchers provided historical context of how that theme has changed over the last two decades; examined current factors, such as trade agreements and political leadership and then provided an outlook as to what is likely to happen over the next one to three years.
The Centre then created a scenario for each of those ten themes: a narrative of possible events that could combine to create an extreme outcome. The scenarios looked at different regions, and they were set at different levels of severity. For example, the terrorism scenario postulated an insurgency in central Africa, affecting access to rare earth minerals and cutting supply chains, an outcome which would affect technology globally. In this case, the severity levels were fine-tuned around how long the mining sites remained inaccessible and how long it might take to find an alternative source for battery minerals.
To draft the scenarios, the Cambridge team interviewed experts on each of the themes, with inputs from academia, insurance, intelligence, and government.
The second part of the study looked at insurance innovation and opportunity through geopolitical change. The authors worked with Lloyd’s experts to study how insurance might ameliorate these risks in the short term, with the aim of stimulating innovation in real products that address these risks.
Shifting powers: Meeting the challenges of the geopolitical landscape
The main geopolitics report was followed by a ‘deep dive’ study looking at the relationship between geopolitical standing and climate change. This will be used to foster conversation for the insurance market going forward and to provide allied product.
Shifting powers: Climate cooperation, chaos or competition?
“When we think of geopolitical risk we think of conflict. But there is so much that is exposed other than physical FLEXOR assets and there are creative solutions out there that the insurance industry can work with.Pauline Giorgini - Innovation team, Lloyd’s
Lloyd’s recognises that we are seeing a major change to the geopolitical map, one we haven’t seen since the mid-20th century. This this project is a proactive approach to adapt insurance to the way things are going to change for the next generation.”
The geopolitics report brings together original research and sets it up for product innovation. Lloyd’s has seeded the key insights from the geopolitics research into the FutureMinds programme, which brings together diverse experts focused on the next generation of product development. Using insight into new customer needs, FutureMinds creates products with the potential to be incubated and tested in the market.
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