Political risk insurance: Have we hit peak globalisation?

The latest annual political risk report from a major international broker suggests so

Political risk insurance: Have we hit peak globalisation?

Risk Management News

By Lucy Hook

Political and economic risks for multinational businesses are set to increase in 2017, and we may have hit “peak globalisation” – that’s according to Marsh’s latest annual political risk map report.

While Marsh’s annual report has typically been dominated by risks in emerging markets, this year the “twin shocks” of the UK’s vote to leave the European Union, and Donald Trump’s surprise victory in the US, have put the western world firmly in the spotlight too.

Those events defied conventional wisdom, the report said, causing many other countries to turn inward as anti-establishment groups sat up and took notice.

In emerging markets, elections and uncertainty around succession are driving political uncertainty, coupled with continued economic disparity.

And as nations become increasingly protectionist, “peak globalisation,” could potentially stifle global economic trade moving forward, according to the report.

With a nexus of risks globally, what’s the appetite from clients for coverage?

“When it comes to political risk insurance, I think that multi-national companies are certainly much more interested in it than they used to be, and it’s much more widely purchased than it used to be,” Rob Deeley, senior vice president, political risk and structured credit practice at Marsh, said at a media briefing at the firm’s offices in London yesterday.

“But that could well partly be a phenomenon that the market is much more capable than it used to be as well,” he added.

With an increasing number of insurers in the market, there is more capacity for companies to insure more assets in more countries, he explained.

“It’s not necessarily the fact that clients want [political risk insurance] more than they used to, but I think the market is more able to supply it.”

It’s not just multi-national firms that have an interest in these types of policies – “really any company that’s investing or trading in a market with which its unfamiliar, will be coming to us to see if we can assist with their political credit risk,” Deeley continued, “and that level of enquiry is naturally slightly heightened when there is an incident in a particular country.”

Julian Macey-Dare, international leader credit & political risk practice at Marsh, said that in the last couple of years, the firm has had to “change our focus and change the lens on looking at political risk, and what it is.”

“Political risk is a term that’s thrown about that encompasses a lot. Every day you read about political risks – they’re not all insurable,” he explained.

“I think the question mark will be can insurers continue to sustain these types of losses, and continue to write a valid product which protects insureds, in the face of areas which are increasingly unpredictable.”


Related stories:
The rise of ransomware: What should brokers know? 
Seeing the positives in Brexit 
 

Keep up with the latest news and events

Join our mailing list, it’s free!