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Tariffs and the Lloyd’s market: Proactively navigating systemic risks
Alex Koukoudis, Senior Executive, Finance & Risk, Lloyd’s Market Association
The recent introduction of the so-called US “Liberation Day” tariffs is weaponising global trade and there is no industry or sector that will remain unaffected from its ripple effects. Bring into the mix a wider pattern of geopolitical and economic volatility and we have a boiling blend of systemic risks that risk management functions are somehow trying to foresee and mitigate. As exciting as it is to work in risk management, the multi-dimensional challenge of shifting exposures is a ‘beast’ that must be tackled.
The Lloyd’s market has demonstrated outstanding agility in responding to complex, systemic and dynamic risks. The last few years is a good example, from political instability to systemic health crises, our members have consistently provided tailored insurance solutions to help insureds navigate uncertainty.
Tariffs and their knock-on effects are no exception. As global financial markets react to trade tensions, insurance portfolios face pressures from multiple directions:
- Higher claims costs, especially where tariffs increase the price of goods, spare parts and repairs.
- Investment volatility, as markets respond to economic nationalism and regulatory fragmentation.
- Shifting exposure landscapes, as supply chains are rerouted and dependencies redefined.
Elevating risk management in the face of systemic threats
Risk management functions across the Lloyd’s market are already playing a pivotal role. Managing tariff risk is not just about modelling scenarios — it’s about reacting in real time, across multiple domains.
Yet these aren’t uncharted waters.
Our members’ risk management functions have demonstrated their value in similarly complex situations, from the investment and underwriting fallout of COVID-19 lockdowns to the broad geopolitical ramifications of Russia’s invasion of Ukraine. In each case, risk teams supported key functions with relevant insights to recalibrate exposure models, reprice risk and adjust risk appetite, and inform executive decisions quickly and credibly.
Strategic real-time response by risk management
To stay ahead, risk teams across the market are adopting an integrated, strategic and proactive approach. This aligns with the work of the LMA’s Risk Next Generation Committee, whose Business Engagement workstream has highlighted that risk teams are evolving into strategic partners, providing insights, shaping decisions and embedding risk thinking across the business.
These ambitions are already being put into practice through several real-time initiatives across the market:
- Cross-functional integration and leadership: Taking a central role in driving coordination among underwriting, exposure management, claims, actuarial and investment teams to ensure comprehensive decision-making in response to evolving systemic threats.
- Scenario and stress testing: Employing ongoing scenario analyses to understand interconnected systemic risks, such as claim cost inflation and investment market fluctuations, ensuring preparedness and agility.
- Portfolio reviews: To track which classes of business are most exposed to new trade restrictions alongside risk appetite and capital implications.
- Risk dashboards: Providing underwriting and boards with up-to-date views on investment markets and trade policy shifts, enabling real-time adjustments to underwriting, risk appetite and strategic asset allocation.
By embedding these practices across the market, risk management functions are helping to shape the market’s response and resilience.
Looking ahead
Tariffs are just one manifestation of a broader global reset. As markets, regulators and insureds adapt to this new reality, risk management is no longer a back-office function; it’s a strategic enabler.
And in the Lloyd’s market, where responsiveness to complex risks has always been part of our DNA, risk professionals are helping ensure that tradition continues.