Reinsurers eye connected risk opportunity in Russell Group AstraZeneca deal

Failure to consider connected risk is leaving re/insurers unnecessarily exposed, especially as the world becomes more complex. Re/insurers must heed the lessons of the past and embrace this challenge.

That is the view of Suki Basi, founder of Russell Group. When it comes to interconnected risks, he has pedigree. Russell Group’s origins go back to Lloyd’s crisis in the early 1990s when the market came close to collapse. Basi was called in to help unravel asbestos losses and the London Market Excess of Loss spiral to clarify liabilities for the London Market Claims Bureau and Lloyds’ of London. The crisis was ultimately resolved through the run-off vehicle Equitas, but it had a long-lasting impact on Basi. 

“That was my introduction to the market,” he said. The idea that unrecognised interconnectivity can quickly lead to spiralling losses and a systemic risk stayed with him.

Now, Russell Group is again focused on addressing “connected risk”, which it defines as “the systemic impact on commercial organisations that stem from cumulative events and resulting uncertainties”.

Compared with the early 1990s, the world is even more complex and connected. From geopolitical to cyber risks, the risks of losses accumulating across different fronts are greater than ever. A single event can impact firms and disrupt trade.

“The drivers for connected risk cover everything: political, economic, environmental, supply chain, credit, etc. All those things are interconnected. A problem ‘over there’ could be a problem here very rapidly,” he told Baden-Baden Today.

According to Basi, the traditional insurance model is poorly placed to manage connected risk. “Re/insurers operate in silos. This creates problems for insurers and insureds. Siloes prevent a good understanding of exposures and liabilities.”

Basi concluded that clients want a new type of policy that insures them, no matter the peril. “The only thing they’re interested in is the outcome, which is that if they can’t trade, they have a solution to help manage the short-term cash flow problem arising from that.”

“Clients want a new type of policy that insures them, no matter the peril.”

A good start

In May, those conversations resulted in the first outcomes-based connected risk policy for one of the group’s members. Pharmaceutical giant AstraZeneca Group unveiled a five-year Business Resilience Insurance Policy, supported by three of the world’s largest reinsurers. It covers supply chain disruption, reputation damage and product recall.

Basi admits that the policy doesn’t reflect the full vision of the connected risk philosophy, as it doesn’t cover the full range of risk—but it’s a start. The next step is to build more capacity for such insurance covers, and Russell Group is keen to work with insurers, reinsurers and potentially other players.

“It doesn’t have to be just insurance and reinsurance companies,” said Basi. “There are plenty of capital providers out there. The world is awash with global capital.”

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