Insurance is the Invisible Backbone of Global Commerce

Insurance is the invisible backbone of global commerce, facilitating the trust required for businesses and individuals to engage in financial and operational activities. By absorbing and managing risks, insurers and reinsurers enable the smooth functioning of economies, while brokers act as intermediaries to connect clients with appropriate risk solutions. Without insurance, the foundational mechanisms of trade, transport, and finance would falter.

Here’s why insurance is indispensable for commerce:

1. Facilitating Financial Transactions: Banks require insurance to issue mortgages, finance construction, and back infrastructure projects. Without insurance, financing for homes, offices, and public works would become untenable.

2. Enabling Everyday Activities: Insurance underpins activities like driving, flying, vacationing, or attending events. For instance, concerts such as Taylor Swift’s Eras Tour rely on event insurance to mitigate risks from cancellations, liability claims, or property damage.

3. Supporting Manufacturing and Logistics: Planes, trains, and automobiles require insurance coverage for production, transportation, and operation. Global supply chains depend on marine and cargo insurance to protect goods in transit.

4. Restoring and Repairing Losses: When businesses or individuals experience financial losses due to accidents, natural disasters, or other unforeseen events, insurers provide the financial support needed for recovery.

The absence of insurance would stall commerce, increase financial vulnerability, and stifle economic progress. It is a critical enabler of trust and stability in modern society, ensuring risks are transferred and managed effectively, allowing people and businesses to innovate and operate confidently. The list of things and activities that don’t happen in the absence of insurance is a very long list. 

Insurance simply and undeniably plays a fundamental role in the workings of modern society as a necessary precondition for all commerce and activities we take for granted. 

The importance of the insurance industry to the overall economy can be understood through the numbers, the sheer size of its scope and its contributions to businesses around the world. It’s one of the largest industries in the world, with a global market value greater than the GDPs of many countries

In 2023, global insurance premiums in the Property & Casualty (P&C) sector were estimated at approximately $2.1 trillion, driven largely by premium rate increases in commercial lines to address heightened risks from inflation and natural catastrophes. The growth rate was about 5% year-on-year in nominal terms, reflecting regional variations in demand and risk management strategies.

For natural catastrophes, insured losses for 2023 were significant but varied by estimate:

• Munich Re reported insured losses of $95 billion, slightly below the 10-year average of $105 billion.

• Gallagher Re estimated insured losses at $116 billion.

• Swiss Re placed the figure at $108 billion.

Notwithstanding insured losses the total economic losses from natural disasters in 2023 ranged between $250 billion and $291 billion and further highlights the additional value insurance can provide to underserved communities, regions and economies.

The existence of insurance provides the opportunity to plan with more certainty, avoiding or mitigating specific risks that are deemed to be threatening to the general business process. Insurance is often considered an unnecessary expense, and businesses and individuals can be reluctant to purchase it. It serves as a critical investment, a financial tool for businesses and individuals to manage and mitigate risks and to ultimately protect assets and fund legal liabilities. Its presence allows for more confident planning and investment, as it provides a safety net against unexpected events like natural disasters, lawsuits, or market volatility. By transferring specific risks to insurers, businesses can focus on growth and operations with reduced financial uncertainty.

The perception of insurance as an unnecessary expense, and often considered a grudge purchase, stems from a misunderstanding of its value. The cost of premiums might seem burdensome, especially for risks that seem unlikely to materialize. Yet, insurance is fundamentally an investment in asset protection and long-term stability. Without it, unforeseen events could result in catastrophic financial losses, far exceeding the cost of coverage.

The balance lies in choosing insurance policies that align with actual risks and needs. For instance, businesses in disaster-prone areas might prioritize property insurance, while startups might focus on liability and cyber insurance. The key is viewing insurance not as a cost, or a grudge purchase but rather as a strategic measure to safeguard sustainability and resilience.