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Jun 2024

The rising profile of political risk

Source: Middle East Insurance Review | Jun 2024

Many insurers in the MENA region still need to be focused on the growing threat to the continued stability of their business models presented by the increase in number and severity of natural catastrophes. Others are turning their attention to the increasingly pervasive threat represented by cyber crime.
Others still are already turning their attention to the growing risk of war and political violence, perhaps not in their home markets but in contiguous markets that may be crucial to their supply chains. The war between Israel and Hamas is one source of such disquiet, but the jitters extend well beyond that.
In May, Moody’s launched its Major Risks Shaping Insurance Today which lists what it considers to be the 10 biggest risks for insurers. These include cyber, Nat CAT, achieving net zero, macroeconomic shocks, supply chains, crumbling infrastructure, long-tail liabilities and longevity and mortality.
The tenth risk Moody’s identifies as ‘perennial wars rise back to the surface’.
Beazley seems to have reached a similar conclusion in its Geopolitical Risk Snapshot 2024.
The broker makes the bold assertion that, “2024 will shape global politics for the remainder of the decade.” It goes on to say, “Recognising geopolitical risks in this era of accelerating risk and putting in mitigation measures early is crucial for businesses seeking to invest in less politically stable areas of the world, as well as closer to home.”
It also says, “From the situation in the Middle East to the continuing conflict in Ukraine and potential changes of government in western democracies, the sheer number of variables and how they will interact to shape geopolitics will test business strategies to the limit.”
For the (re)insurance sector in the MENA region, this rising disharmony could be a threat – but it could also present an opportunity as businesses en bloc increasingly require more specialist insurance cover.
Standalone cover for political violence, strikes, riots and civil commotion is increasingly becoming a necessity. As businesses become exposed to a growing range of perils, the need to move away from pure terrorism cover is becoming increasingly necessary.
The modus operandi of many (re)insurance businesses in the region has become ‘expect the unexpected’ – and plan accordingly.
In such a volatile environment, primary carriers, reinsurers and brokers alike will carry the burden of making sure that the businesses that they count as clients are informed – both about the risks as well as the potential mitigation that each may require. It is a fast-moving environment for all concerned – and truly this is where the insurance industry should excel.
It is likely to be a bruising year for many businesses and Beazley summarises nicely when it said, “By providing coverage for losses, political, trade credit and political violence risk cover enables companies to secure assets against expropriation and political violence. It also reassures lenders and investors, facilitating access to the necessary capital for large-scale mining projects that are at the heart of the renewable energy transition.”
Paul McNamara
Editorial director
Middle East Insurance Review
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