Based on the Allianz Risk Barometer 2024, businesses are more concerned about political risks and violence than they have been for many years. Among the global list of business concerns, it has risen to eighth position – its highest ranking since 2017.
Security and supply chains have been rocked by ongoing international conflicts, most notably in the Middle East and Ukraine, while elsewhere in the world, security is being undermined by the impact of civil war, civil unrest, lawlessness and organised crime.
Social unrest on the rise
New anti-government protests erupted in 83 countries in 2023 (including in seven countries that had not experienced major protests in the past five years), driven by factors such as high inflation, wealth inequality, food and fuel prices, climate anxieties and concerns about civil liberties or perceived assaults on democracy.
Further challenges have come as we have moved through 2024 and beyond, particularly around election-related strikes, riots and civil commotion (SRCC) events and concerns, as well as misinformation.
The 2024 Global Election Supercycle has raised concerns about the fuelling of populism and polarisation, with tensions playing out in heightened civil unrest and geopolitical shifts.
In Asia, the Indian elections in May brought into focus religious polarisation and clashes, while in Indonesia, the election in February and more recently the proposed election law changes have resulted in a spate of protests and demonstrations. The Pakistan general election in February was marred by deadly militant attacks and in Bangladesh student demonstrations and heavy-handed police response resulted in a change of government in August.
Supply chain diversification introduces new risks
As multinational firms look to diversify their supply chains into alternative markets to avoid geopolitical exposures, they are increasingly looking at locating production closer to the point of sale or in countries deemed geopolitical allies.
However, companies could face rising political and security risks. In emerging markets, including manufacturing hubs such as Indonesia and Thailand, civil unrest is the main cause for concern, aside from government instability and exposure to conflict and terrorism which also pose a threat, according to risk intelligence firm, Verisk Maplecroft.
Over three quarters of emerging markets have seen a rise in civil unrest over the last five years, including Bangladesh, where textile workers forced the closure of hundreds of factories in wage-related protests in November 2023, and Indonesia, where protests broke out at the end of 2023 over minimum wage levels.
Impact for businesses: Risk exposures
Political violence can impact businesses in many ways. In addition to endangering the safety of employees and customers, those in the immediate vicinity of unrest can suffer business interruption losses and material damage to property or assets, while indirect damage can be inflicted on companies in the form of ‘loss of attraction’ or ‘denial of access’ to their premises.
As unrest can now spread more quickly and widely – thanks in part to the power of social media – financial costs are mounting. Economic and insured losses from such activity can be considerable, resulting in significant losses for companies and their insurers. Often, businesses are victims of their locality, origin and their footprint.
However, the pattern of protests and violence over the last 10 years has clearly shown that some industries and occupancies are much more vulnerable to the full spectrum of political violence perils.
Targets can vary depending on the type of incident but can include:
- Government, municipal, army or police buildings or infrastructure
- Transport infrastructure and hubs
- Retail premises, particularly those with high value assets; pharmacies; those that are foreign-owned or represent globalisation and/or the economic interests of a former colonial power
- Private enterprises, including those that are foreign-owned or believed to have supported an unpopular government
- Critical assets, such as petrol stations, or those of high value
- Distribution centres for critical goods and assets
- Tourism and hospitality businesses, including those in countries that international governments have deemed inadvisable for non-essential travel
- Supply chains – if disrupted, could lead to resource nationalism as governments attempt to ensure supply of essential goods to their own countries
Protecting people and property
Political violence risks are not just financial but can also impact operatives who work in or close to high-risk areas, operations, reputations and supply chains.
So, what can companies do to safeguard their assets and ensure business activities can continue?
Businesses need to protect their people and property with forward planning. Using scenario planning and tracking risks in areas key to their operations can raise businesses’ awareness of where political violence and civil unrest risks may be intensifying.
Businesses can consider the following steps when they first spot signs of any unrest or political violence that could impact their operations:
- Stay abreast of news on planned protests and government policies and implement a business continuity plan (BCP) in advance if you do not have one in place already
- Revise and update your BCP. Your BCP and your business processes might need amending if a regime introduces new requirements or if there is a risk of sanctions
- Retail businesses on high street should increase security and/or reduce inventory, including those with high-value assets, those that are multinational or foreign-owned, petrol stations, pharmacies and banks. Consider temporary relocation of inventory or assets if you are highly likely to be affected
- Implement increased security measures at distribution centres
- Prepare for moving more services online to support business continuity
- Protect your supply chains by ensuring diversity of geography and companies
- Review your insurance policies. Property policies may cover political violence claims in some cases, but insurers also offer specialist coverage to mitigate the impact of SRCC via the specialist political violence market
Risk management and insurance
The ongoing political violence and SRCC incidents across the globe present a significant challenge not only for businesses but also for the broader insurance sector, as coverage extends well beyond traditional political violence and terrorism insurance. In Asia, demand for political violence coverage continues to grow, even in markets where such demand has historically been low. However, market capacity, advisory expertise and appetite for these products remain limited.
Despite these challenges, Asia represents a largely untapped market, offering considerable growth opportunities for insurers. Multinational programmes are particularly appealing due to the diversification of political risks, as well as accounts that provide high-quality information and strong SRCC controls.
From an underwriting perspective, the approach to managing political violence risks is similar to that of other first-party lines of business. This includes the need for appropriate terms and conditions, effective accumulation monitoring, limit management and a keen awareness of emerging risks. To succeed in this market, there is a critical need for the development of local advisory, underwriting, and claims expertise, along with tailored coverage solutions and a commitment to technical discipline in underwriting. A
Mr Jude Cross is the regional head of property at Allianz Commercial Asia.