Ukraine war could have long-term business impacts – Aon and Lloyd’s report

Key findings from the report include:

• In all sectors, the ability of businesses to diversify and hedge their portfolios and supply chains to reduce dependence on single suppliers will be vital to minimizing risk exposure
• The energy sector will likely be the hardest hit by the range of risks driven by the war; however, energy security and reputational concerns will be key factors for all sectors in building risk mitigation strategies to respond to the conflict
• In addition to the immediate inflationary impacts, there will be second-order effects from reduced food and energy supplies; Russia produces a fifth of the world’s wheat and 40% of Europe’s Gas. There will also be higher business costs  associated with reshoring supply chains
• The Ukraine war’s impacts are highly interrelated. For example, escalating geopolitical tensions have driven a spike in cyber attacks that could have knock-on impacts on inflation and market volatility

Read next: Ukraine conflict: The CSR lessons for the insurance industry

The report applied five plausible scenarios to the industries and geographies most affected by the war in Ukraine. Each scenario explores the possible short, medium, and long-term effects of the war across supply chains, energy, food security, ESG, the climate transition, inflation and cyber.

The report highlighted the importance of insurance to help businesses mitigate these risks.

“The conflict in Ukraine has caused devastating human costs and a whole range of interconnected risks across areas like energy, cyber and supply chains,” said John Neal, CEO of Lloyd’s. “Just take the recent challenges of exporting grain, where geopolitics has in turn affected food security, market volatility and price inflation. A proactive and forward-thinking approach will therefore be key to building resilience against the fallout – and Lloyd’s will deploy its expertise, resources and risk solutions to support that goal.”

“The Ukraine conflict touches us all, both as individuals and businesses,” said Dominic Christian, global chairman of reinsurance solutions at Aon. “Over time, our world has become increasingly interconnected, and geopolitical events further highlight that a specific risk does not exist in isolation.

“Our ability to manage deeply related and increasingly volatile risks requires careful thought, detailed planning and effective execution. I hope the front-line perspectives contained in this report help businesses understand the universality of the challenges, the ways they may evolve and how they may best navigate them as they make better-informed decisions.”