Political risk is increasing and not only in headline-grabbing countries like those in the Mideast and North Africa. As events in Thailand and Ukraine make clear, no region or country is permanently immune to instability and unrest. Increasing numbers of executives have come to view increased political risk as the other side of the globalization coin.
This heightened risk is having a negative impact on investment and, potentially, global growth. According to the recent Clements Worldwide Risk Index, 21 percent of risk managers in global corporations and NGOs said they have reconsidered expanding operations to territories outside of the United States due to heightened political risk.
The increased risk has also impacted the availability and cost of insurance. Without insurance, most global trade and investment simply does not happen.
What can executives do to help manage this new world of instability and higher insurance costs?
First, managers can invest more in risk management overall. Risk management encompasses emergency planning, training, security and other techniques to manage and reduce risk. It also includes testing an emergency plan, which typically highlights gaps.
Next, managers should consider retaining the services of the growing number of political risk, insurance and security consultancies that provide political intelligence. These companies provide useful insights into potential risks one might encounter, especially when starting operations in a new location. As the situations in Turkey, Greece, and even Brazil make clear, executives need to understand that no country is absolutely safe anymore.
Finally, organizations should consider increased spending on international insurance. There are more options than ever before for political violence, political risk, Kidnap and Ransom (K&R), international evacuation and related commercial and NGO-specific insurance policies. The best organizations link their brokers or insurance carriers to their overall risk management strategy and ensure their plans include which broker to contact in case of which emergency, as it may differ for a medical versus a property event.
As global trade grows, international operations and investments are more dependent on safeguarding against critical risk factors than at any time in modern history. Civil unrest, unexpected events and political instability are realities in much of the world. Global managers need to get serious about bringing their risk management strategies into line with the new facts on the ground. And international insurance remains at the center of those strategies.
Sergio Sanchez is Chief Marketing Officer of Clements Worldwide, a leading international insurance provider with offices in Washington, DC, London and Dubai.