As the world gears up for the 2024 elections, businesses and insurers alike are bracing for a year of significant political shifts. With over two billion voters heading to the polls in more than 50 countries, the insurance industry faces unique challenges and opportunities. Understanding the potential impacts of these elections is crucial for navigating this uncertain time.
The outcomes of worldwide elections will impact the insurance industry differently across countries. For instance, changes in administration can lead to new regulations, impacting everything from healthcare insurance mandates to climate change-related policies and tax laws.
Insurers must manage their exposure by leveraging accurate local intelligence about trends and developments to anticipate and adapt to these changes effectively.
Heightened Demand for Political Risk Insurance
Election-induced uncertainty has heightened interest in political risk cover, even in regions where political risk has traditionally been minimal. Businesses are increasingly aware of the need to protect themselves against potential disruptions caused by political instability. This growing concern underscores the importance of understanding and mitigating political risks.
Key Political Risks
Some primary political risks stand out: strikes, riots and civil commotion, terrorism, war, and civil war.
However, several other risks can significantly impact an organization's ability to operate effectively, including sovereign credit risk, expropriation, and contract repudiation. These risks can disrupt business operations, halt projects, or lead to financial losses.
James Crask, head of strategic risk consulting at Marsh UK and Ireland, emphasizes the importance of understanding how political risks can manifest in business operations.
"These might stop the business from operating or they may just slow it down and frustrate it," explains Crask. Companies need to scrutinize their supply chains and consider how different political risks might affect them.
Rising Demand for Contract Frustration Cover
One particular area of increasing interest is "contract frustration" cover. Businesses seek this type of insurance to mitigate the risk of public sector contracts being canceled or unpaid, especially after a change in government. Government contract cancellations tend to spike post-election, particularly in countries facing economic struggles.
According to Chaucer, the demand for contract frustration cover is rising as businesses look to safeguard against such risks. This type of coverage is crucial for companies reliant on government contracts, providing a safety net against political uncertainties.
Protecting Against Sovereign Credit Risk
Political risk cover also plays a vital role in protecting against sovereign credit risk. Following elections, creditors may seek insurance to guard against a nation defaulting on its debts. This protection is essential for maintaining financial stability in the face of political upheaval.
Safeguarding Against Political Unrest
Jonathan Bint, a senior underwriter and analyst at Chaucer, notes a major increase in the number of businesses seeking political risk cover.
"With such a dramatic increase in the number of voters heading towards the ballot boxes this year, businesses around the world will be moving to safeguard against the cancellation of government contracts or financial losses arising from civil unrest or political violence," Bint explains. The economic direction of many countries could change radically this year, increasing the need for businesses to protect themselves against political risk.
Strategic planning is essential for insurers to mitigate risks associated with political changes. Leveraging local intelligence and staying adaptable in a volatile political landscape are key to effective risk management.
Insurers must be prepared to adjust their strategies in response to evolving political scenarios, ensuring they can adequately protect their clients.
Concerns Highlighted By Business Leaders
A recent poll of Airmic members found that the elections in the UK and US were their greatest concerns for 2024. Hoe-Yeong Loke, head of research at Airmic, emphasized that the stakes are especially high this time around.
Adding potential artificial intelligence-induced election interference to the mix of geopolitical turmoil and macroeconomic uncertainty creates a vicious circle of volatility worldwide.
Monitoring Regulatory Risks
Businesses must be vigilant in monitoring regulatory risks specific to their sectors, footprint, and profile. Seréna Pilkington, an analyst at Control Risks, advises that geopolitics, economic issues, and protecting national strategic priorities will take precedence. Carefully monitoring changes in regulations is critical for mitigating risks.
Political Risk Fallout
The political risk fallout will be most substantive in closely contested and emotive elections, with the US standing out as the most contentious and significant. Crask advises organizations to think globally about the potential impacts of these elections. This includes considering changes in customer demand dynamics, service delivery, increased regulation, taxation, and the overall financial stability and operations of organizations.
As we approach the 2024 elections, businesses and insurers must manage political risks proactively. Organizations can navigate the uncertain landscape effectively by understanding the potential impacts of these elections and taking steps to safeguard against disruptions. The evolving issue of political risk insurance highlights the need for vigilance and adaptability in protecting business interests worldwide.
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