Political polarization is contributing to greater instability and increasing the potential for political violence and inconsistent policymaking, according to the latest Political Risk Index from Willis (WTW).
The index identifies affective polarization – how strongly individuals view opposing political parties as adversaries – as being at an all-time global high. While polarization is most severe in countries already experiencing violent political conflict, the sharpest increases in affective polarization are occurring in democracies such as the US, Germany, India, Brazil, and Bulgaria.
In addition to affective measures, the index evaluates ideological polarization, which concerns public agreement on policy issues, and elite polarization, referring to the extent to which political leaders recognize each other as legitimate.
The US is the only country where all three dimensions of polarization have intensified rapidly over the past 15 years.
Willis analyzed over 100 years of data from more than 200 countries and found that, in democracies, spikes in polarization have often followed economic downturns or corruption scandals.
These events have coincided with the erosion of confidence in mainstream political leaders and the emergence of populist movements. They are also linked to more frequent occurrences of political violence.
Sam Wilkin, director of political risk analytics at Willis, said the link between polarization and violence is well documented.
“Polarization is also being felt on a more personal basis, such as how we perceive our friends and colleagues. Businesses face growing challenges from operating in increasingly polarized societies,” he said.
Businesses are increasingly seeking to manage these exposures, with demand for political risk insurance rising significantly in recent years. According to a previous WTW report, 68% of firms reported purchasing political risk insurance in 2022, compared to 25% in 2019.
The shift highlights a growing perception that political instability is not limited to high-risk jurisdictions but is becoming a global phenomenon.
Willis’ Political Risk Index also notes that the highest levels of affective polarization are seen in countries where political divisions align with ethnic or religious identities. Prolonged leadership by polarizing figures and the presence of contentious populists were also cited as factors contributing to division.
Additionally, geopolitical and foreign policy disagreements have played a role in fragmenting societies.
In this context, consumer sentiment is also beginning to reflect political divides. Research cited by Allianz suggests that political polarization could dampen economic activity by as much as $215 billion in the US and Europe over the next four years, largely through its effects on consumer confidence and spending behavior.
The insurer has also pointed to rising concerns over polarization in corporate boardrooms, as companies evaluate not only direct operational risks but also shifts in consumer behavior and reputational exposure.
Trends show that polarization and populism are not confined to developed democracies. They are also rising in emerging markets across both the US and Europe and in other regions.
A related trend noted in the broader political risk landscape is the growing realignment of countries away from traditional Western alliances. A report by WTW and Oxford Analytica has identified a pattern of global “dealignment,” with certain governments reevaluating their diplomatic and economic alignments.
The Political Risk Index also outlines instances where polarization has declined following targeted interventions. These include truth and reconciliation efforts, cross-party collaboration, and transparent investigations into corruption or other crises. The report suggests that these past cases may provide applicable insights for addressing present-day challenges.
Despite efforts to mitigate these risks, the insurance market for political violence coverage is experiencing notable hardening. Market participants, including Allianz, have observed increased underwriting scrutiny and rising premiums across many geographies.
This trend is driven in part by the persistence of armed conflicts, such as those in Ukraine and the Middle East, but also by the growing incidence of riots, protests, and politically motivated attacks in otherwise stable markets.
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