Demand for political risk insurance is predicted to grow in 2024 driven by an increase in the number of elections worldwide, an event that usually heightens the value of economies, and together increase political risk for businesses operating in countries facing political uncertainty, said Chaucer.
According to the re/insurers data, the total number of national elections will increase 14% next year, from 56 globally in 2023 to 64 in 2024. Among these, the US and South Africa elections are particularly important, Jonathan Bint, Senior Underwriter and Analyst at Chaucer, added.
Other elections particularly important highlighted by Blint include: Indonesia, South Korea, India, Mexico, and UK.
As the value of economies grows with elections – the total value of economies with elections will jump from $9.9tn in 2023 to $40.8tn in 2024 -, combined with the increase of countries with elections in 2023, presents increased political risk for businesses.
This is especially relevant for those businesses operating in countries that face political uncertainty.
“When governments are struggling to pay their bills, this can increase the risk that businesses can find their public sector contracts suddenly cancelled or go unpaid. Businesses have increasingly been insuring against governments failing to pay their bills by buying ‘contract frustration’ cover,” analysts explained.
“Contract frustration insurance is seeing an uptick in demand as businesses look to mitigate the risk of contract cancellation by governments. Government contract cancellations spike in frequency after a change in government, so an increase in elections – itself increasing the likelihood of government change – is driving up demand for contract frustration cover.”
According to the report, recent events such as the mob violence following the 2020 US presidential election and 2022 Brazilian presidential election highlighted the risks businesses face in election years – underlining the need for insurance policies to protect their assets.
Another common fear for investors is whether a potential government may be less willing to pay its creditors. The prospect of a government open to defaulting on its debts leaves those with money at stake with little option but to secure political risk cover to protect their interests.
Bint added: “Not only are more elections taking place next year than this year, but crucially these elections will affect key major economies around the world. 2024 could be a year of significant political change which we believe could lead to political risk insurance being pushed further up the boardroom agenda.”
“Organisations from governmental outsourcers to major state creditors should be looking at which of these elections they are exposed to. Those who don’t currently have cover should speak to specialists about how to manage the risks involved in political change.”
He concluded: “We’ve seen how volatile markets become when political candidates with unorthodox economic policies look likely to win. Political risk is an inherent feature of the democratic process. Political risk cover exists to help businesses handle this volatility, knowing that their own risk profile is manageable.”
