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More serious global risks call for thicker armor


Risk managers and insurers with international operations or exposures have had a lot to think about over the past several weeks.

To begin with, the decision by voters in the United Kingdom to exit the European Union continues to baffle many inside and outside the country. Dry economic analysis suggests that the decision will likely hurt the country financially, but U.K. voters' willingness to leave an organization that developed from a post-World War II trade pact into a cornerstone of the modern geopolitical order says much about current feelings in Britain and elsewhere regarding issues such as national sovereignty and immigration.

How the Brexit vote will affect business remains unclear, but it's fairly safe to say it will be disruptive.

In the insurance field, some insurers in London have said they are looking to roll out contingency plans and establish operations or licenses in countries that will remain part of the European Union after Britain leaves. And last week, about a month after the vote, American International Group Inc. launched some Brexit insurance coverage.

The free add-on to its directors and officers liability policy will cover legal action if their applications to become a permanent resident of the U.K. or E.U. member are rejected. The coverage presages the difficulties companies may face as Britain negotiates with the E.U. over freedom of movement, which allows E.U. residents to live and work in other E.U. countries.

In the big picture, the insurance won't be covering a huge exposure for companies or their executives, but it's indicative of how quickly insurers can react to an exposure and an opportunity. Indeed, much of the financial risks arising out of the U.K.'s vote will fall into the category of general business risks, which insurers cover at their peril.

Other events overseas highlight the growing risk of violence facing companies operating internationally. Shocking terrorist attacks in France and the coup attempt in Turkey, which has also suffered terrorist attacks, present distinct problems for organizations with overseas locations and staff.

While the pursuit of growth and profit is the driving force behind most international expansion efforts, from a risk management perspective, protection of people and property remain key concerns that have become a lot more concerning in light of these events.

Successful risk managers are expected to find ways to make their businesses' operations work regardless of the challenges, but in the face of new terrorist tactics and political disruptions in once-relatively stable countries, it is tough for risk managers to live up to those expectations.

While tapping available insurance coverage - whether new-style Brexit cover or old-style property and political risk cover - is an option, such insurance can't provide a complete shield for the barrage of risks. Instead, companies must take time to update their international risk management plans to reflect the new reality of global exposures.

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