Following many decades where globalization ruled, as corporations searched for the lowest labor costs and ever greater efficiency, the tide appears to have turned. I believe that corporations will be reversing their globalization efforts for at least the next decade and likely far longer.
Shocks to the global supply chain from the pandemic and the Russian invasion of Ukraine, plus heightened threats that China will invade Taiwan, have made companies realize that, in their search for efficiencies, they have been picking up nickels in front of steamrollers -- just ask Germany about its decision years ago to build pipelines and rely on Russia for more than half its natural gas only to now have it cut off. Political trends emphasizing nationalism are also pushing companies to "re-shore" or at least "friendshore" their manufacturing.
The retrenchment will have profound, lasting effects on global businesses and, of course, on the companies that insure them.
Now, we humans have short memories, and some of the worst effects of recent disruptions have dissipated. The supply chain problems have been sorted out well enough that the cost of shipping a container from China to the U.S. has dropped 90% from its peak and is back to where it was before the pandemic. Nobody is taking pictures any longer of container ships queued up for weeks while waiting to unload in Long Beach, CA. Likewise, gasoline prices in the U.S. are back to where they were before Russia invaded Ukraine.
At the same time, there have been setbacks for the most extreme political movements toward nationalism around the world. So, there may be some tendency to return to the status quo before all the disruptions of recent years.
But I don't think so.
As this very smart piece at The Real Economy Blog explains, there are just too many factors that will unravel globalization. It won't be a quick process, any more than globalization was quick. I still remember the aha moment I had about how global businesses had become when I read Robert Reich's landmark article in Harvard Business Review, "Who Is Us?", about how companies seen as, say, American might generate most of their revenue and profit outside the country. And that article ran in 1990.
The implications for insurers will be profound -- though hard to detail just yet. In some ways, life will be simpler as companies move to "de-risk" their supply chains. Interest rates may also remain high as central banks try to tame inflation, and high interest rates help insurers' investment portfolios. At the same time, inflation increases claims costs -- as many property/casualty insurers, especially in auto, are seeing now.
And so on. A lot of forces will be unleashed by de-globalization, just as there were by globalization, and I don't pretend to be able to sort them all out. I'm basically just saying: Buckle in for the long haul.
Cheers,
Paul