Election season mayhem: securing business
In a world grappling with heightened geopolitical tensions and an unprecedented surge in global elections, political risks have become a critical concern for businesses worldwide.
The demand for specialised insurance coverage against politically motivated malicious acts, riots, strikes, terrorism, and public disorders is at an all-time high.
As brokers, advisers, and insurers prepare for the complexities of a 'super-cycle' election year in 2024, understanding and mitigating these risks is paramount.
FAnews spoke to Muzi Dladla, Executive Manager of Stakeholder Management at Sasria SOC Ltd, about how insurance providers are adapting to these challenges, offering insights into their strategies for navigating political risk and safeguarding businesses from the financial impacts of unrest and instability.
Main concerns for insurers
The 2024 super-cycle election year, globally, heightens the risk of political unrest, including protests, riots, and strikes. This is particularly pertinent in regions with histories of civil unrest, such as South Africa. Dladla highlights, “The nexus of property damage due to public protest, political or not, is categorised by insuring the consequences of disgruntled individuals’ behaviour. This complexity adds an intense amount of volatility to the management of the risk.” The economic instability caused by political upheaval leads to significant infrastructure and property damage, logistics interference, and job losses, which have an overall adverse impact on the economy.
Preparation strategies include enhanced risk assessment tools and continuous monitoring of political climates in key regions. Revising policy terms and conditions to address the heightened risk, possibly increasing premiums, or adding specific conditions, is crucial. Informing clients about the importance of political risk insurance and the steps they can take to mitigate risks is a key strategy. Additionally, working closely with brokers to ensure they understand the evolving risks and can adequately advise clients is fundamental.
Geopolitical events on the insurance market
There has been a noticeable rise in both the frequency and severity of claims related to political violence and civil unrest. The 2021 riots in South Africa are a stark example, causing unprecedented damage and loss. Regions with high socio-economic disparities, such as parts of Africa and the Middle East, have shown significant increases in incidents of political violence. The nature of threats is evolving, with more coordinated and sophisticated attacks being observed.
The rise in political risks globally has led to increased demand for coverage against politically motivated malicious acts, riots, strikes, terrorism, and public disorders. Events like the July 2021 unrest in South Africa underscore the need for such coverage. “This has led to a subsequent reduction in capacity, both from insurers and reinsurers,” Dladla explains.
Insurers are adjusting premiums and terms to reflect the increased risk and potential for higher claims. Dladla also notes the development of more collaborative structures that involve both the state and the insurance industry to draw collaborative advantage from the efficiencies of the insurance sector and the state’s fiscal obligation to cover such contingencies, including emerging related threats.
Businesses also can face significant disruptions, including damage to physical assets, supply chain interruptions, and loss of revenue. Ensuring the safety of employees during unrest is a major concern. Common losses and disruptions include the destruction of buildings, machinery, and inventory, halting of operations leading to financial losses, and disruption of logistics and supply chains affecting production and delivery.
According to Dladla, offering policies that cover a wide range of political risks, including riots, strikes, terrorism, and civil commotion, is crucial. Business interruption insurance, covering financial losses due to interruptions in business operations, is also vital. Providing crisis management services to help businesses manage and recover from political violence incidents, including trauma assistance, is another important strategy.
Challenges in assessing and underwriting risks
Political events are inherently unpredictable due to the disgruntled nature of the protestors, making it difficult to assess risk accurately. Dladla points out, “South Africa had two significant events in a period of 50 years, 1976 and 2021.” The lack of comprehensive historical data on political violence incidents can hinder risk assessment. Multiple factors, including socioeconomic conditions, political instability, and public sentiment, contribute to the risk of political violence.
Navigating uncertainty involves using advanced analytics and modelling techniques to better predict potential incidents, like protest migration patterns, and overlaying it with property data on a map. Developing multiple scenarios to prepare for different potential outcomes is essential. Dladla elaborates on using models like Maximum Foreseeable Loss mapping, which shocks and stresses the risk mitigations. Engaging with political analysts and local experts to gain deeper insights into regional risks is also a key strategy.
Advice to brokers and advisers
Dladla emphasised that brokers and advisers should ensure clients understand the scope and limitations of their coverage. Encouraging clients to regularly assess their risk exposure and adjust their coverage accordingly is essential. Advising clients on steps they can take to mitigate risks, such as enhancing security measures and developing contingency plans, is also important.
Conducting training sessions to educate brokers about political risk insurance is critical. Dladla notes, “The year 2021 exposed a significant gap in the advice space for clients.” Working with brokers to perform joint risk assessments for clients and maintaining open communication channels to share updates on emerging risks and policy changes are key strategies.
Predictions for the future
Climate change-related political unrest, cyber-attacks with political motives, and geopolitical shifts will likely become more prominent, according to Dladla. “Increased use of technology and data analytics to predict and manage risks is expected. Potential changes in regulations as governments respond to the increasing frequency of political violence are also anticipated,” he said.
“It is crucial for businesses and insurers to take a proactive approach to managing political risks. Strengthened collaboration between the state and insurers, brokers, and clients will enhance resilience against political violence. Staying informed about global political trends and continuously updating risk management strategies will be essential in navigating the complex landscape of political risk insurance,” he concluded.
Writer’s Thoughts
In an era of escalating political risks, brokers and advisers play a crucial role in guiding businesses through uncertainty. Understanding evolving threats and adapting strategies will be key to safeguarding clients and ensuring resilience in an unpredictable global landscape. Do you agree? Please comment below, interact with us on Twitter at @fanews_online or email me - [email protected]
