Risks are unavoidable in almost any business activity but are particularly important in navigating global trade, banking, and insurance. Credit risks, political risks, and environmental risks must be consistently monitored and can quickly become major deterrents for banks, businesses, and foreign investors when considering potential transactions – leaving significant market gaps for countries and businesses that are viewed as being particularly risky. Providing risk mitigation solutions for OIC countries is the driving force behind ICIEC’s formation over 25 years ago.
As a multilateral investment and export credit insurance provider for over 47 Member Countries, ICIEC understands the vital importance of tracking risks to stay ahead of the trends and maintain stable trade flow. The onslaught of the global pandemic this year has caused major challenges to economic activity in just a few months. These unprecedented effects have highlighted the importance of ICIEC’s efforts to analyze and measure perceived risk – especially when planning for long-term recovery.
The stark contrast between the World Economic Forum’s Global Risk Report from January of this year and AXA’s Future Risks Report 2020, published more recently in October demonstrates the extraordinary change in risk priorities across the globe. In only a matter of months, the number one risk perceived by both experts and the general public has shifted from climate change and extreme weather conditions to public health. This comes as no surprise considering the COVID-19 virus, and the economic and social damage it brings, has shocked and challenged governments, citizens, and businesses across the world.
COVID-19 required urgent adaptations to mitigate the negative implications of the virus from both a health and economic standpoint. This rapid response automatically heightened awareness and the anxieties surrounding pandemics and infectious diseases. Previously considered a distant and unlikely risk, pandemics are now being viewed as an immediate and deadly threat to the entire global population. Leading experts warn that infectious disease is the risk presenting the greatest threat to society over the next five to ten years.
Encouragingly, these same experts believe that governments are now more prepared to tackle pandemics and infectious diseases.. Although the pandemic is unprecedented, most governments around the world have acted quickly and decisively when employing initiatives that address the immediate impacts of COVID-19. That being said, it remains to be seen how well the same governments will be able to address the long-term challenges that may follow in the coming months.
The Islamic Development Bank Group devised the ‘Strategic Preparedness and Response Facility’, which provided US$2.3 billion to mitigate the negative health and socio-economic impact of the pandemic in OIC countries – including USD 150 million for ICIEC insurance coverage.
With the increased perception of public health and infectious disease comes a decrease in the perception of climate change as an important and time sensitive risk. While it remains a high priority for most countries and experts, there is some worry that this longer-term threat will become overshadowed by the short-term challenges surrounding the pandemic. ICIEC recognizes the importance of addressing climate change within member countries and is dedicated to maintaining focus on environmental sustainability while simultaneously responding to more immediate challenges in response to the pandemic.
Top 5 Emerging Risks:
- Pandemics and infectious diseases
- Climate change
- Cybersecurity risks
- Geopolitical instability
- Social discontent and local conflicts
(AXA, Future Risk Report 2020)
In terms of perceived risks, the pandemic isn’t considered the greatest threat solely because of the risk to public health. The crisis also further exacerbates the trends that were already in place, such as public debt, cybersecurity, geopolitical tensions, unemployment, and inequality. Due to the speed and severity of the pandemic, what would typically have unfolded over many years is instead taking place over just a few months. This acceleration is causing larger and more immediate disruptions, exemplifying that risks are complex, interconnected and interdependent – that there is increasing potential for risks to influence each other in unpredictable ways.
What does this mean for trade credit insurance? Trade credit insurance will remain essential in supporting trade flows and supply chains that are crucial for economic recovery, providing security to businesses and investors. Insurance providers can expect a sharp increase in market demand and should be open to supporting businesses in mitigating these risks. However, they should also exercise caution, as claims are expected to increase alongside this market demand and the long-term implications of the pandemic are still ultimately unknown.
ICIEC has partnered with the poverty alleviation arm of the IsDB Group, the Islamic Solidarity Fund for Development (ISFD), for the ‘ICIEC-ISFD Covid-19 Emergency Response Initiative’ (ICERI) in response to COVID-19. The fund has structured a concessional all-in pricing mechanism to help preserve the flow of essential imports to OIC countries.
In an increasingly uncertain world with more complex and connected risks, ICIEC believes that insurance solutions can offer protection, expertise, and clarity, contributing to businesses’ peace of mind and collective member country recovery.
Considering the challenges posed this year, ICIEC has maintained a strong performed so far in 2020 – reporting 7.3 billion USD in business insured at the end of the third quarter. Down only 4% from 2019’s robust results.
References:
- AXA, Future Risk Report 2020: https://www.axa.com/en/press/publications/future-risks-report-2020
- World Economic Forum, Global Risk Report 2020: http://www3.weforum.org/docs/WEF_Global_Risk_Report_2020.pdf
