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Political risk will remain a major concern for multinational businesses in 2018, Marsh L.L.C. said, driven by such events as the North Korea missile crisis, ongoing Brexit negotiations and trade protectionism.
Marsh’s Political Risk Map 2018, which draws upon data and insight from London-based BMI Research, noted that the risk of increased global trade protectionism also continues.
BMI Research predicted that trade giants, such as the U.S., will seek further restrictions in 2018, after a brief decline in these measures being implemented last year.
Evan Freely, global practice leader of credit specialties at Marsh, said in a statement that “social instability, adverse government actions and terrorist threats are among the most common political risks that multinational organizations now face when trading or investing in foreign countries.”
The Trump administration has asked the U.S. Department of Commerce to conduct studies into “unfair” trade practices, Marsh said, which could be used to justify tariffs.
In Europe, the United Kingdom’s negotiations to exit the European Union continue to loom over the political risk landscape, while political instability persists in Spain, and Italy’s general election in March raises concerns over the rise of anti-establishment and Eurosceptic parties.
Succession risks dominate the political risk landscape in many African countries, Marsh said, and the threat of terrorism remains a concern, evidenced by attacks in Europe, Africa, Asia and elsewhere in 2017.
“Multinational organizations face a complex and ever-changing political risk environment,” the report said. “Social instability and adverse government actions are among the most common examples of political risks that multinational organizations face when trading or investing in foreign countries.”
The Political Risk Map rates countries on political and economic stability and provides insight into where risks are most likely to emerge. Marsh said the map can be used to help multinationals make more informed decisions about how to deploy their financial resources in the year ahead.
“While political risks are often not directly controllable in this complex and ever-changing environment,” Mr. Freely said, “in many instances they can be mitigated through credit and political risk insurance, providing greater confidence in the benefits of these opportunities in potentially unstable areas of the world.”
Marsh said that whether it is a political violence or a terrorism insurance policy that responds to a claim often depends on how insurers and governments view specific events.
In some instances, Marsh said, terrorism and political violence insurers have denied coverage, claiming that a particular event should be covered under the other type of policy. Alternatively, political risk insurance can help bridge gaps by including coverage for both perils, potentially avoiding such disputes.
Maxime Hayes, political risk underwriter at U.K.-based Beazley P.L.C.'s unit in France, said that infrastructure firms are increasingly buying political risk insurance to cover infrastructure contracts with governments and firms in Sub-Saharan Africa, StrategicRisk reported. Mr. Hayes said that contract frustration is the biggest reason for demand among French buyers of political risk covers, particularly banks and exporters. "We see particular demand from infrastructure projects in Senegal, Ivory Coast, Benin and Togo," he added.