Political volatility heightens risks worldwide

Political volatility heightens risks worldwide | Insurance Business Canada

Political volatility heightens risks worldwide

The retreat of US leadership. Growing geopolitical competition between major powers. Decaying liberal democratic governance. The world order is turning on its side – and businesses have much to lose in the limbo.

Political violence risks are on the rise worldwide, according to Aon‘s 2018 Risk Maps for Political Risk, Terrorism, and Political Violence. One-fifth of the world’s countries are now rated as high or severe risk. At risk for businesses is the safety of their people, property, revenue generation, and supply chains.

Multinational corporations today are operating in an environment where the likelihood of interstate conflict is at its highest point since the end of the Cold War. The maps, which keep tabs on changing risks for businesses, draw on insights from The Risk Advisory Group and Continuum Economics. This year, they report that 60% of countries are exposed to civil unrest risk, 40% are threatened by terrorism and sabotage, and one-third face the serious dangers of insurrection, war, or coups.

"The Aon Terrorism & Political Violence Map 2018 points to inter-state tensions driving up longer-term political violence risks, as well as diversifying terrorist and extremist threats particularly in the West,” says Henry Wilkinson, head of intelligence and analysis at The Risk Advisory Group.

Growing polarisation in Western democracies over political, economic, and social issues, says the report, has exacerbated security and uncertainty worldwide. The resulting political violence, compounded by climate shocks and weakened fiscal positions, has increased supply chain disruption in many countries.

In Asia, the rise of China as a trade giant and viable alternative to the US has intensified political risk potential. Around the same time that Asia’s exports to the US have dropped to about 12%, Asia’s exports to China have doubled – to nearly 23%.

Regionally speaking, nowhere poses a greater risk than Africa. Ongoing conflicts and eroding governance fuelled by corruption scandals have opened doors for groups like Islamic State (IS) and Boko Haram.  Whereas throughout the rest of the world, the threat posed by IS has been contained. In 2017, the group carried out attacks in 29 countries – the same as in the previous year, indicating its influence may have peaked. However, the number of terrorist attacks in Western countries spiked to 204 in 2017 – up from 96 in 2016 – though total casualties remained about the same.

“The long-term trend of non-state actors being the predominant political violence concern in most regions is shifting towards geopolitical risks. These are more business threatening and demand board-level ownership,” says Wilkinson. “In such an unsettled environment, “it is imperative that businesses invest in world class crisis and risk management programs that are intelligence-led, anticipatory and adaptive to rapid change."

Risk managers, especially within multinational corporations, are tasked with navigating through a complex new world order. “Given this heightened level of risk, and the rapidly evolving landscape against which businesses are operating, it is essential the companies understand their exposures and the potential for political instability to impact their people, property and supply chains,” says Mark Parker, head of property, casualty, and crisis management, Aon Global Broking Centre. “Ensuring that the right solutions are in place to mitigate and transfer risk is essential for firms operating internationally."