Aon has reported that global political volatility is leading to increased political violence and political risk, with the likelihood of interstate conflict, terrorism, and general political and economic disruption all increasing.
Aon’s 2018 Risk Maps report found that political violence risks are rising globally due to geopolitical tensions, a weakening of liberal democratic governance, and the repercussions of global conflicts.
For the third year in a row, Aon found that overall country risk ratings increased, with 40% of countries now being listed as exposed to terrorism and sabotage risk, 60% to civil unrest risk, and 33% to insurrection, war, or coup risk.
The insurance and reinsurance broker now considers 46 countries to be at severe risk – 22% of the global total – and suggests that the likelihood of interstate conflict is at its highest point since the end of the Cold War.
This volatility can be attributed to growing geopolitical competition and weak diplomacy leadership, to increased polarisation over political, economic, and social issues in mature democracies, and to strategic divisions between Western powers faced with complex threats.
The report also found the number of terrorist attacks in Western countries to have doubled between 2016 and 2017, with 204 incidents reported last year, but noted that the number of casualties remained similar at 1,092, suggesting a reduction in the lethality of attacks.
The tourism industry is particularly at risk from terrorist attacks, which targeted commercial sectors like hotels and resorts, nightclubs, civil aviation, and visitor attractions in 35 separate incidents last year.
However, Aon predicts that attacks mounted by Islamic State, which was responsible for 29 incidents in 2017, will fall in 2018 as its global reach peaks and its threat becomes contained.
Aon also observed general political risk to increase in 11 countries over 2017, driven by political violence and supply chain disruption, which has been exacerbated by climate shocks and weakening fiscal positions.
Prominent global factors include Asian countries shifting their trade linkages away from the U.S and toward China, and a busy election season looming in Latin America, with major countries at risk of electing populist governments.
Africa contributed most to the rise in risk, with ongoing conflicts, weakening democratic governance, corruption, and terrorist influences creating more political violence, although the Middle East also contained some of the highest-risk countries, such as Iraq, Syria, Yemen and Egypt.
Mark Parker, Head of Property, Casualty and Crisis Management at Aon Global Broking Centre, said: “Given this heightened level of risk, and the rapidly evolving landscape against which businesses are operating, it is essential the companies understand their exposures and the potential for political instability to impact their people, property and supply chains. Ensuring that the right solutions are in place to mitigate and transfer risk is essential for firms operating internationally.”
Paulina Argudin, Director, Country Risk Model, Continuum Economics, also commented: “Last year we saw political risk rising in several countries, driven mainly by increases in political violence and supply chain disruption.
“The persistence and rise of political risk across the globe demonstrates how relevant it is for businesses to identify and monitor specific political risk elements in their countries of operation.
Additionally, Henry Wilkinson, Head of Intelligence & Analysis at The Risk Advisory Group, said: “The long-term trend of non-state actors being the predominant political violence concern in most regions is shifting towards geopolitical risks. These are more business threatening and demand board-level ownership.
“In such an unsettled environment, it is imperative that businesses invest in world class crisis and risk management programs that are intelligence-led, anticipatory and adaptive to rapid change.”
