Ukraine war forces corporates into major Black Swan review: Lloyd’s

The war in Ukraine may force corporate risk managers back to the drawing boards with their brokers and insurers, seeking fresh views to both black swans and to evolving vulnerabilities world-wide, a top US policy maker and  Lloyd’s director has suggested.

“The longer-term ramification on the risk management side is to really think more broadly about the potential exposures around the world, even if they are low probability,” former US Senator and Lloyd’s council member John Sununu said during the Risk and Insurance Management Society’s 2022 annual conference.

The war in Ukraine, much like the pandemic, “reminds us how connected we are” and that secondary impact chains have grown beyond recognition in a highly globalised world. The world can’t overlook the beating of butterfly wings in China when judging Hurricane risks in the west.

Foremost amongst key areas for review: energy security will be a hot and contested topic. The fallout from the invasion “has been to expose us all to the cost of lack of resilience, in this case in the area of energy,” Sununu said. “The impact has been severe.”

That could pit energy security risks against climate risks. “As much as we value the process of reducing our carbon footprint, the transition is not without risk,” Sununu said.

Cyber may turn about face from fear of ransomware to a dawning realization that “cyber threats might come from a real-world conflict and suddenly the potential exists for one of the combatants to engage in organized cyber attacks.”

Supply chain risks could explode beyond to-date borders focused chiefly on Asian pandemic lockdown regimes to increasingly global and increasingly urgent parameters. Global corporate players will be forced to balance a variety of risks between strategies focused on increasing inventories, onshoring component production or diversifying supply.

Arguably most surprising amongst the to-be-discarded risk assumptions: that central Europe doesn’t bear political risks.

The Russian invasion of Ukraine may have put paid to an optimistic line of thinking that followed the fall of the Berlin wall that, with admitted exceptions and diversions, things are generally and necessarily trending better, Sununu said.

“Low probability events with enormous impacts and a kind of connectedness and secondary impacts … they happen,” Sununu said during. “We have to be cognizant of that. We can’t live in a world in which bad things won’t happen in the future if we just buy enough insurance.”

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