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Companies must prepare for more political disruption

Companies must prepare for more political disruption | Insurance Business UK

Companies must prepare for more political disruption

Companies need to prepare for more political disturbances and violence in the months ahead, according to a report by Allianz Global Corporate & Specialty (AGCS).

Damage, disturbances and losses from riots, vandalism or other forms of civil unrest are now among the top political risk exposures for companies, and the ongoing impact of the COVID-19 pandemic will likely fuel further unrest, AGCS said. The insurer said that business continuity planning needs to proactively address political violence risks – especially in highly exposed sectors like retail.

“Fortunately, large-scale terrorism events have declined drastically in the last five years. However, the number, scale and duration of riots and protests in the last two years is staggering, and we have seen businesses suffering significant losses,” said Bjoern Reusswig, head of global political violence and hostile environment solutions at AGCS. “Civil unrest has soared, driven by protests on issues ranging from economic hardship to police brutality, which have affected citizens around the world. And the impact of the COVID-19 pandemic is making things worse – with little sign of an end to the economic downturn in sight, the number of protests is likely to continue climbing.”

According to the Allianz Risk Barometer 2021, an annual global risk survey, civil unrest incidents are becoming a more significant risk for companies. In this year’s survey, “political risks and violence” hit the top 10 risks for the first time since 2018.

That trend is supported by recent research that predicts the number of global protesters will increase over the next two years. Research firm Verisk Maplecroft expects 75 countries to experience an increase in protests by late 2022. Of those, more than 30 – largely in Europe and the Americas – are likely to see significant activity.

Political violence also caused significant insurance claims last year, according to AGCS. While protests following the murder of George Floyd by Minneapolis police were mostly peaceful, the arson, vandalism and looting that did occur will cost insurers at least US$1 billion to US$2 billion in claims, according to Axios.

AGCS stressed that businesses don’t have to be direct victims of civil unrest to suffer financial losses. Revenue can fall if the surrounding area is cordoned off for a prolonged period or while infrastructure is repaired to allow reentry of customers, vendors and suppliers. During the French “yellow vest” demonstrations, shops along the Champs-Élysées in Paris were looted and damaged, which drove customers away. After just a few weeks of demonstrations, it was reported that French retailers had lost US$1.1 billion in revenue.

COVID-19 likely to drive further violence

The COVID-19 pandemic has been a key driver of civil unrest because it has both magnified longstanding grievances and given them a focal point, AGCS said. COVID-19 has harmed political stability, increased polarisation and starkly highlighted issues of inequality, eroding labor conditions and civil rights.

“Unfortunately, the risk of riots and violence is likely to become more acute because of COVID-19,” said Michael stone, a risk consultant for AGCS North America. “The measures governments have used to combat the coronavirus have had a significant socioeconomic impact, and frustration is growing in large population segments. The impact is particularly evident in the US, where the social safety net is not as comprehensive as elsewhere. People are concerned. Job, health and income security are all gone. They’re likely to demonstrate and have a shorter fuse, so it isn’t surprising that anti-lockdown demonstrations can turn violent.”

The pandemic has also driven the flourishing of conspiracy theories, which also lays the groundwork for future violence. One theory baselessly linking COVID-19 to 5G cellular technology resulted in a series of arson attacks on cell phone towers in the UK and other European countries.

Need for business continuity planning

Preparation for political violence risks is vital, particularly for exposed sectors like retail, AGCS said. During two days of Black Lives Matter demonstrations in Chicago in late May, almost every storefront on Michigan Avenue was damaged. Businesses need to review their business continuity plans (BCP), the insurer said. BCPs typically focus only on natural catastrophes, but there is a growing need for these plans to address political disturbances and other risks like cyber incidents.

Companies should also review their insurance policies, AGCS said. While some property policies may cover political violence in certain cases, insurers also offer specialist coverage to mitigate the impact of strikes, riots and civil unrest.

“Previously this coverage was seen as ‘nice to have’ for clients and ‘nothing to be overly concerned about’ by insurers,” Reusswig said. “However, this has changed since 2018, as both the frequency and severity of these events has increased significantly. We see growing interest and demand for political violence covers from companies.”