4 Ways To Combat P/C ‘Mega-Risks’ In 2022

By Mike Chapman

In 2021, the U.S. had 19 weather disasters that each resulted in $1 billion or more in damages, the National Oceanic and Atmospheric Administration reported. Also in 2021, more than 1,800 data breaches were identified by the Identify Theft Resource Center, and the world experienced one of the biggest supply chain disruptions in modern history while struggling through the second year of a global pandemic.

As a result, the insurance market is moving away from transactional coverage and moving more toward comanagement of risk.

These mega-risks that we experienced last year are not going away any time soon, but instead are expected to intensify in the year ahead.

So what do risk management solutions look like in 2022? Here are four ways brokers, vendors and insureds can work together to combat these mega-risks in 2022.

Enhanced Predictive Systems For CAT Claims

The global economy is being impacted continuously as climate change continues to slam farms, food manufacturers and hospitality businesses, damaging crops, affecting livestock, and disrupting operations on a massive scale. As a result, P/C rates are on the rise. For both restaurants and lodging establishments, rates are expected to increase as much as 20% in 2022. Property rates for other types of commercial real estate will rise 10% or more.

To combat these issues, insurance companies can ask businesses to use enhanced warning and predictive systems such as catastrophe modeling and fire- and water-resistant construction materials when possible. While storms are now more foreseeable, they are still out of human control; therefore, strong risk management solutions use these tools in conjunction with post-loss response plans for recovery and resuming operations.

Cyber Security Takes Center Stage

The COVID-19 pandemic pushed a lot of businesses to operate virtually in 2020. Although this increased reliance on technology has helped improve operations across industries, it also has increased cyber risk.

For example, in the second quarter of 2021, attempted online fraud in the hospitality sector rose 156% year-over-year, according to TransUnion, and over the last year cyberattacks against large food manufacturers halted production at several processing facilities.

As cyberattacks become more common, cyber insurance rates will rise to the tune of 20% to 30% this year.

Cyber insurance is no longer a good-enough solution against cyber threats. Organizations need strong risk management solutions that include improved network defenses, multifactor authentication, employee training and third-party vendor security audits.

Supply Chain Resilience Is Critical

By the end of 2021, supply chain disruptions were commonplace. Labor shortages and consumer habits made it difficult for businesses to deliver products, materials and other goods quickly during the course of the COVID-19 pandemic.

In the construction industry, material shortages interrupted cash flow, leading to cost spikes, ruined schedules for projects and busted budgets. For short-haul drivers, simply leaving port with cargo is an administrative and bureaucratic nightmare. As a result, both of these industries are experiencing a rise in coverage costs, with construction coverage costs increasing between 5-35% depending on project size, and coverage for courier and delivery fleet bumping up by at least 25%.

Resilience is the key to mitigating these issues, as businesses should build up materials reserves and developing backup suppliers. It’s also important to establish local and regional supplier relationships to avoid reliance on foreign-made supplies.

Set Your Business Apart With Employee Benefits

Although workers compensation premiums are expected to remain flat in 2022, the challenge for business owners will be remaining competitive at the worker level as worker expectations evolve, potentially leaving businesses shorthanded and more at risk.

It has never been more difficult to attract and retain quality employees, and pandemic-related challenges have created different expectations for the work environment. An aging population, vaccine hesitancy, and a desire for remote work changed the employee landscape and left employers scrambling for solutions.

One way that employers can set themselves apart is through extended benefits programs. Organizations that can demonstrate investment into their workers – through improved pay, training programs, and mental health services – can more easily avoid the risks of understaffed operations.

Secure The Right Risk Partner In 2022

The COVID-19 pandemic created a complex environment for business owners and employers of all types. These conditions make it essential to partner with a broker that specializes in your market, understands your risk level and knows the market inside and out. In doing so, you can build a strong risk management program that positions your business for a successful year.

Mike Chapman is the national director of commercial markets for global insurance brokerage Hub International. He may be contacted at [email protected].