Lloyd’s, the world’s foremost insurance and reinsurance marketplace, has unveiled a new report that estimates a hypothetical geopolitical conflict could incur an astronomical $14.5tn in economic losses over the next five years.
This scenario is part of Lloyd’s systemic risk series and explores the potential global ramifications of disruptions to trade patterns and supply chains, according to InsurTech Insights.
The insights presented aim to assist risk managers, governments, and insurers in understanding the risks associated with such crises.
The report underscores the fragility of global trade, noting that more than 80% of imports and exports—roughly 11bn tons of goods—are transported by sea at any given time.
Any closure of crucial trade routes due to geopolitical tensions could wreak havoc on global supply chains and resource availability.
The projected economic losses would predominantly arise from the destruction of infrastructure in conflict zones, along with the enforced realignment of global trade necessitated by sanctions and disrupted shipping lines.
Regions that rely heavily on international trade would bear the brunt of these impacts. For instance, Europe, which is significantly dependent on industrial goods like semiconductors, could incur losses of up to $3.4tn.
Rebekah Clement, Lloyd’s corporate affairs director, stated, “Lloyd’s is supportive of public-private efforts to avoid global crises such as shortages of vital commodities and is committed to helping businesses remain resilient and prepare for the risks from widespread disruptions and financial loss from countless global risks, including geopolitical stability.
“The value of insurance also extends to the compounding secondary impacts of geopolitical conflict, including downstream delays and interruptions by impacted trading partners and suppliers. Examples of insurance covers which can help businesses protect themselves against these impacts include political risk insurance and contingent business interruption, as well as dedicated war risk insurance.”
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