Sergio Sanchez

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.

Global trade and the exchange of commercial services across borders, especially into developing economies, is the new key driver of strategic growth for an increasingly larger number of multinational organizations. According to the World Trade Organization, merchandise imports into developing economies grew by five percent last year against an average global GDP growth rate of just two percent. The growth in export of commercial services worldwide topped six percent, three times the rate of growth from the previous year.

China’s recent economic slowdown notwithstanding, the global commercial activity continues to expand, particularly in Europe and throughout the developing world.

In this context of increasing international expansion among commercial enterprises and even not-for-profit organizations, protecting personnel and assets abroad against international risks is an absolute necessity.

This is especially true in developing countries—including in some of the very countries that promise the highest rewards in terms of investment opportunities and new customers.

According to the recent Clements Worldwide Risk Index, 28 percent of senior managers at international organizations and NGOs stated that political unrest was their “top concern,” while 21 percent admitted being “not prepared at all” for a terrorist attack overseas. These concerns stem from the realities of the global marketplace, and it suggests that international organizations must get real about their international insurance needs and, therefore, the protection of their most important assets abroad.

The direct link between international insurance and sustainability of overseas investments is often downplayed by global financial analysts. Increased political risks and unexpected bursts of civil disturbances and political violence, even in international locations typically considered stable, have the potential to generate significant –sometimes catastrophic– losses to organizations. Such events may also drive commercial or NGO insurance premiums higher, affecting organizations that delay securing their international insurance coverages and limiting expansion and growth plans overseas.

We’re seeing that right now in Libya. The political instability and intermittent violence there has made political risk, Kidnap & Ransom (K&R) and related international insurance very difficult to obtain. This has led major infrastructure and oil companies to all but halt additional investments in that country, in spite of significant opportunities.

There are relatively easy steps executives can take to manage and significantly lower these risks. We’ll outline how you can better prepare your organization for future international growth in an upcoming article on this site next week.

Sergio Sanchez is Chief Marketing Officer of Clements Worldwide, a leading international insurance provider with offices in Washington, DC, London and Dubai.

What Can You Do to Manage Instability and Higher Insurance Costs?

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