A January 2025 report from the Geneva Association, titled Insurance in a Fragmented World Economy, found that geopolitical tensions have driven the global economy toward “geoeconomic fragmentation.”

Geoeconomics refers to the intersection of geopolitical forces and economic policies. The report highlights how this dynamic can create increased fragmentation as nations adopt policies that prioritize national security over efficiency. This can result in substantial spending and rising debt levels.

“Geoeconomic fragmentation signals a shift toward national security and resilience over economic efficiency, disrupting free trade and globally integrated supply chains,” Kai-Uwe Schanz, director of macro- and geoeconomic shifts at the Geneva Association and author of the report, said in a press release. “While full-scale deglobalization remains improbable, insurers face rising challenges – from greater exposure to climate and cybersecurity risks to less scope for diversification in underwriting and investment management. Strategic agility will be key to managing volatility and unlocking new opportunities in this evolving environment.”

The report said this concept has been spurred by things like the U.S.-China trade conflict, the COVID-19 pandemic, and the ongoing war between Russia and Ukraine. This shift has reversed some of the global economic growth and lessened inflation that was brought on in the post-war era.

“Since the Global Financial Crisis, foreign direct investment flows have declined as a share of global GDP, worsened by geopolitical tensions,” the report said. “Capital increasingly gravitates within geopolitical blocs, prompting a restructuring of global supply chains via reshoring or ‘friend-shoring’. While these strategies may reduce geopolitical risks, they come at the cost of efficiency, ultimately raising production costs and consumer prices.”

This means several challenges for insurers, including a lack of global consensus on top-of-mind issues such as climate change, pandemic recovery and preparedness, and cybersecurity.

“Insurers may also face increased risk exposure and insurability challenges related to these threats,” the report said.

Increased claims volatility and potentially higher premiums for policyholders are also expected, according to the report, as barriers to cross-border activities may lessen opportunities for insurers to geographically diversify their risk. These barriers also can present legal and regulatory challenges for insurers and ultimately lead to consolidation in the industry.

“Fragmentation also increases operational complexity for international insurers, as diverging or even discriminatory legal and regulatory frameworks impose significant compliance costs, particularly in geopolitically distant regions,” the report said. “This may compel some insurers to refocus on home and geopolitically closer markets, potentially spurring consolidation within the insurance industry.”

Marine insurance is one sector of the insurance industry that could face difficulty, the report noted, as a shift toward localized supply chains is expected.

“This could, in the short term, lead to an uptick in insurance claims due to rerouting, ultimately heightening marine insurers’ risk exposure,” the report said.

That said, opportunities also exist as insurers are in a position to be a stabilizing force bridging some of these gaps. One way insurers can do this is through effective scenario planning, the report said.

“This methodology equips insurers to anticipate various potential futures and assess both immediate and long-term impacts on operations,” the report said. “Each scenario must consider implications for critical areas such as claims frequency, severity and investment returns, as well as impact assessments encompassing growth, profitability and solvency.”

Additionally, insurers can capitalize on increased investments in renewable energy sources by developing specialized products to support the renewable energy sector. Insurers should also “adapt their business models to align with the evolving economic environment, which may include reassessing global footprints and diversifying product lines.”

The report sees a greater need for political risk insurance, as one example. This offers coverage against losses from political events as a tense geopolitical climate has boosted demand for this coverage. Cyber insurance, which primarily addresses losses stemming from cyber attacks and data breaches, is also becoming increasingly vital in today’s geopolitical environment, the report said.

“State-sponsored cyber threats may escalate due to geopolitical tensions, exacerbating risks for businesses and adding to attribution challenges in the context of insurability,” according to the report.

Another sector that is in high demand is D&O coverage.

“Corporate executives and non-executives use directors and officers insurance to protect against claims stemming from their decisions,” the report said. “Geoeconomic fragmentation increases the potential for arbitrary regulatory investigations, which amplifies claims exposure for D&O insurers. Reputational risks tied to political controversies further underscore the importance of D&O coverage.”

The report urged insurers to proactively adapt to geoeconomic fragmentation in order to maintain resilience and relevance, adding that they can contribute to more stabilization by being an industry voice in policy discussions helping to shape regulations that affect the industry.

“The tides of globalization are shifting, with geoeconomic fragmentation posing both challenges and opportunities for the insurance sector,” said Jad Ariss, managing director of the Geneva Association, in a press release. “Insurers must navigate rising volatility, restricted diversification, and harder-to-mitigate global risks, while seizing growth opportunities.”