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Jun 2018

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Belt and Road Initiative challenges the insurance profession

Source: Asia Insurance Review | Jun 2018

Asia Risk Management

The Belt and Road Initiative, originally the One Belt and One Road Initiative, was announced by President Xi of China in late 2013 and hailed as ‘the project of the century’. As more details emerged, it quickly garnered interest and became one of the most exciting global trade developments of recent times. Cunningham Lindsey’s Paul Bloxsome provides some insights
 
 
The Belt and Road Initiative consists of two major segments:
  • The New Silk Road Economic Belt, featuring a host of land-based trade and infrastructure projects.
  • 21st Century Maritime Silk Road, featuring ocean-based infrastructure including shipping lanes, ports and other facilities across the Asia Pacific region.
 
   Analysts were quick to highlight the significant economic and political benefits of the scheme which included; diverse, new employment opportunities for the Chinese workforce, the opening and re-opening of new and more traditional trading routes, the development of new high-tech infrastructure, together with the predicted stimulation of overseas demand by up to 15%.
 
   Much of the early emphasis highlighted the need for improved international cooperation on policy, facilities, trade and economic management, therefore allowing each country’s unique intellectual property to be utilised for the wider community. 
 
   More practically, this cooperation would need to ensure the security of the proposed trade routes from perils such as piracy and terrorism, work to resolve historic territorial disputes and identify alternatives where this could not be achieved.
 
Working in harmony
Whilst there have been many metaphors used in describing the Belt and Road Initiative, perhaps the most charming was to suggest that this was to be a ‘symphony’ involving the participation of many countries, rather than a ‘solo’ effort by China.
 
   If the development succeeds as intended, it is expected to directly benefit around 4.5bn people in over 70 countries and impact up to 40% of the current global GDP. It is perhaps not surprising that, McKinsey once described the plan as ‘the biggest development push in history’.
 
   As soon as the initiative was announced, the huge opportunity that exists for the insurance profession became apparent.
 
   A report issued by Swiss Re in late 2016 estimated that $1.2tn of Belt and Road projects that had already been announced would generate insurance premiums of $7bn and further speculated that, in the period up to 2030, the project could generate a further $27bn in premium income for the global insurance market – mainly for the construction, property, liability and marine sectors.
 
   The report highlighted that firms involved in the planning and construction of the many projects would be exposed to new risks and urged insurers to understand the implications of the scheme fully and to develop all-in-one type packages and customised solutions as a way of improving efficiency, calming investors concerned with foreign political risks and keeping costs down.
 
Infrastructure first
Unsurprisingly, the majority of the first projects announced related to major infrastructure such as rail, power, roads, airports, ports, waterways, bridges and tunnels. These included the 1,000+ km rail link from Kunming to Laos, pipelines and ports in Pakistan and bridges in Bangladesh. Brokers, insurers and risk managers immediately began to be approached for coverage and risk control packages.
 
   By early 2017, railway, road and marine based infrastructure projects were underway at a projected cost of almost $1tn, with more scheduled to follow as China’s economy transforms from being the world’s biggest goods exporter into being a major capital exporter.
 
   Examples of the projects underway include; the Gwadar Port and Karot Hydropower Projects in Pakistan, the Tehran Metro and, significantly, the Central Asia Gas Pipeline Project which will help to facilitate the transport of natural gas over 7,000km from Turkmenistan into Shanghai.
 
   Potential challenges to the response of the insurance profession have become evident, largely in the form of hesitancy of some of the major US and European insurers to get involved – most likely influenced by political apprehension from their respective governments. Whilst this situation has mellowed in recent times, the insurance profession has maintained a significant presence in the region via companies such as Swiss Re, Allianz, Munich Re, AIG and Lloyd’s of London.
 
   Despite the restraint shown by some, as more projects have been announced, Cunningham Lindsey’s expertise has frequently been recognised. Pre-nominations on a range of projects have been forthcoming, including hydro power stations and offshore wind farms, together with several other energy-related projects and discussions around more future projects are ongoing.
 
Opportunities in insurance
As the Belt and Road Initiative develops further, more ground-breaking technologies will continue to emerge and most will require further innovation before they can be fully effective for all stakeholders across the insurance profession.
 
   Cunningham Lindsey is ideally placed to help with coordinated responses to both claims and risk management. Its global network provides existing capacity in many of the developing areas, providing regional knowledge, language and cultural understanding, country specific management and the ability to quickly gather teams of experts as losses occur.
 
   To complement this, and in response to an increased take-up in Delay in Start-up and advanced loss of profits coverage, a new, in-house approach to risk management has been formulated. The Delay in Start-up unit is being overseen by its Marine and Construction Global Practice Groups and utilises technical expertise from around the world.
 
   This new, market-leading solution emerged as more expertise was bought in-house, allowing their Specialist Practice Groups to connect and handle project monitoring, scheduling analysis, loss of profit and pro-active loss management far more efficiently – ensuring that Cunningham Lindsey continues to live up to its mantra of ‘Right People, Right Place, Right Time’.
 
Significant savings to be had
These new efficiencies have already delivered significant savings in claims costs and claims length, which have consequently led to enhanced stakeholder relationships across the sector.
 
   Once the individual projects have been completed and the new trade routes become active, major efficiencies and opportunities for the movement of cargo will become apparent. Aside from the economic benefits to the producing countries, huge new potential for the insurance profession will become apparent – particularly for marine underwriters.
 
   There can be little doubt that the Belt and Road Initiative is advancing and on the radar of brokers, loss and risk surveyors, underwriters and claims handlers. All involved will need to innovate to accommodate new risk profiles and utilise technological advances when underwriting and ultimately handling the claims.
 
   This is a huge opportunity for the insurance profession to come together globally and showcase the latest innovations and a professional approach to manage the needs of all stakeholders successfully. The ability to innovate and create new productive relationships and partnerships will be key to fully understanding the customised services required and delivering these effectively. 
 
   Whilst Cunningham Lindsey has already enhanced service and efficiency through initiatives such as its Delay in Start-up unit, its recent acquisition by Sedgwick will ensure it remains at the forefront of innovation and technological enhancement – and that the emerging needs of the insurance profession continue to be met. A 
 
Paul Bloxsome is global specialty markets manager with Cunningham Lindsey. 
 
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