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Rise in political unrest sparks concerns over global risks

Hong Kong

Amid growing civil unrest, organizations should prepare for potential exposures that could cause costly interruptions in their operations, insurance experts say.

And as violent protests rise globally, companies are seeking additional political risk insurance coverages to protect their assets, they say.

The number of countries rated extreme risk jumped from 12 in 2019 to 20 by early 2020, according to the latest Civil Unrest Index released last week by Verisk Maplecroft, part of Verisk Analytics Inc.

The risk consultant also identified a significant rise in risk in 47 countries and forecast an uptick in protest in another 75 jurisdictions, according to the report.

Flashpoints that have seen the largest increases in unrest over the past year include Chile and Hong Kong, the report said. Chile jumped in the highest risk index ranking of 198 countries from 91 to 6 and Hong Kong from 117 to 26.

In Hong Kong, protests last year over a subsequently withdrawn bill that could have seen Hong Kong residents extradited to China escalated into wider civil disobedience. In Chile, protests over subway fare increases in the country’s capital broadened to encompass dissatisfaction over inequality.

“Companies should treat higher levels of civil unrest as a ‘new normal’ that is unlikely to disappear any time soon,” said Miha Hribernik, head of Asia research at Verisk Maplecroft in Singapore, in an email to Business Insurance.

“Even if the risk currently seems limited or moderate in a certain industry, or in a certain country, businesses need to plan for every contingency. These can range from limited disruption to public transport and supply chains, all the way to unlikely – but potentially very damaging – violent protests that threaten the safety of staff and company assets,” he said.

Information is a key ally in such situations, according to Mark McLeod, U.S. structured credit & political risk practice leader for Marsh JLT Specialty in New York.

“The best weapon that they have is being informed” of both the external risk environment and their own needs, he said, citing modern supply-chain intricacies as one potential area of exposure.

“Modern manufacturing relies on complex, interlinked supply chains, and even a lot of large, sophisticated companies are not fully aware of the breadth of the complexity of their own supply chains and that makes them susceptible to unexpected disruptions,” he said.

“Any business operating internationally is more exposed than maybe they’re aware,” he added.

Businesses need real-time information on protests and data and forecasts that allow them to prepare in advance, Mr. Hribernik said.

International companies are aware of the increased activity and how it might affect them, said John Minor, director of crisis management and political risk for Aon PLC in Chicago.

“A lot of companies and boardrooms have taken note of the increase in social activism,” he said, adding that they are putting increased focus on projecting a positive image in the communities in which they operate.

“What are we doing, or should we be doing, to mitigate exposure to social activism or to becoming a target of social activism?” Minor said.

The increased levels of social unrest have translated into increased activity for political risk coverages, said Marc Wagman, New York-based managing director in the credit and political risk practice group of Arthur J. Gallagher & Co.

 “In instances where our clients are engaged in a sales transaction, or a debt or equity investment which is cross border in a country where insurance capacity is only available from U.S. insurers, we are seeing increased requests for political violence and civil unrest coverage,” he said.

Clients looking to protect investments in assets in emerging markets and ensure they can repatriate capital and profits are more likely to buy political violence and civil unrest coverage alongside or separately from perils such as confiscation, expropriation and nationalization, he said.

Aon’s Mr. Minor said the brokerage is “getting a lot more inquiries” recently as well.