Insurance industry on high alert

Insurance industry on high alert | Insurance Business America

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Insurance industry on high alert

Elections promise a host of unrest – and brokerage points to a need to be proactive

Insurance News

By
Chris Davis

The insurance industry continues to be on high alert as political and geopolitical risks remain abundant ahead of the upcoming US elections. According to Marsh’s proprietary country risk model, World Risk Review, the risk of civil unrest events alone has grown significantly in both North America and Europe relative to five years ago, by 17% and 10% respectively.

Angela Duca (pictured left), global head of credit specialties at Marsh, shared with Insurance Business the pressing need for sharp, proactive risk management.

“The leading political risk underwriters have been more cautious in their underwriting approach, especially with respect to large limits, over the last 12 to 18 months,” she explained. “And that’s due to factors such as risk concentrations, elevated tensions between China and Taiwan, ongoing conflicts in Ukraine and other countries, and increased claims activity. When I think about the upcoming elections in the US,  there still could be some instability in US relations around the world because the world [is] more fractured now [and] could continue to be so.”

And this divided political environment, with opposing opinions on both sides, could inevitably spill over into the business world, creating long-term impacts on organizations.

“More than 60 countries around the world are holding national elections this year, the results of which will prove consequential for years to come,” added Duca. “And so, we’re anticipating that this environment of heightened geopolitical risk will continue for a time.”

Christopher Coppock (pictured right), head of political risk analysis at Marsh, shared similar views, highlighting the enduring nature of trade and regulatory uncertainty. 

“Commerce-oriented, integration-focused policymaking is no longer the norm globally, and this trend will likely continue,” he told IB. “Ensuring the security of supply chains and access to critical resources has instead become paramount.”

Coppock also noted the potential implications of US election outcomes on global relationships, particularly between China and the EU.

“If US tariffs on Chinese imports increase, Europe might become inundated with surplus  Chinese production, potentially leading a to complex trade and regulatory test for Brussels,” he added.

Recent global conflicts, such as those in Ukraine and Gaza, present significant risks for the insurance market. But, as Duca pointed out, these claims, although infrequent, can be severe.

“We haven’t seen many claims from Gaza, likely due to the small size of the territory and limited foreign investment while the conflict in Ukraine has resulted in losses and claims activity,” she said. “However, it’s important to note that not all companies purchased insurance for their Ukrainian assets, which may limit the number of actual claims that will be filed.”

Marsh is adapting to today’s heightened and uncertain political risk environment  by initiating processes earlier, fostering strong relationships with underwriters, and exploring alternative risk structures for its clients.

“We’re looking at layered programs, different deductible features, and alternative policy tenors to navigate the volatile environment,” added Duca.

As an extension of this, Duca advised clients to perform thorough risk assessments and consider the maximum potential losses they might face.

“Calculating the quantum of what you have at risk is crucial,” she told IB. “Understanding the risks, whether they are people risks, asset risks, or financial risks, allows for better management.”

With emerging political risks an increasing concern for organizations, employers are being urged to understand the interconnected nature of global events and their potential impacts.

“Reputational risks, particularly those linked to government actions, can have significant implications,” added Coppock. “Businesses need to be prepared for potential backlash from both state and non-state actors.”

For Coppock, one significant example of reputational risk involves potential retaliation from government actions.

“With Europe having  issued anti-EV subsidy tariffs against China, Beijing has indicated it might target French alcohol or aviation exports in retaliation,” he told IB. “This demonstrates how businesses can be caught in the crossfire of geopolitical disputes.”

Here, again, Duca emphasized the importance of proactive measures and forward-thinking. “In today’s environment, clients need to be more thoughtful and proactive, such as performing a gap analysis to understand where there are gaps and overlaps in their insurance programs.” She recommended having brokers or risk managers thoroughly review all coverage and pay special attention to political risk, political violence, terrorism policies.

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