Chaucer, a re/insurance company owned by China Re, forecasts that 2024 will bring heightened political risk due to a surge in scheduled elections worldwide.
This escalation raises concerns about potential political upheaval, prompting an increased demand for political risk insurance among businesses globally as they seek to protect themselves. Consequently, the need for reinsurance is also expected to rise.
Chaucer’s analysis reveals an 18% increase in the number of national elections expected in 2024, increasing from 55 in 2023 to 65 in 2024.
Countries with elections planned for 2024 collectively represent a GDP of $44.6 trillion, comprising 44% of the global GDP. This is a substantial increase compared to the previous year when the GDP of election-holding countries amounted to $12.6 trillion, representing 12.4% of global GDP.
Jonathan Bint, Senior Underwriter and Analyst at Chaucer, emphasises the sharp increase in political risk insurance driven by the high voter turnout expected in this year’s elections. He explains, “businesses around the world will be moving to safeguard against the cancellation of government contracts or financial losses arising from civil unrest or political violence.”
To mitigate the risk of public sector contract cancellations or non-payment, businesses are increasingly turning to ‘contract frustration’ insurance. This trend is particularly evident after changes in government, especially when countries face financial strain.
Creditors of a government may also opt for political risk cover to safeguard against the risk of a nation defaulting on its debts following an election. This type of insurance can also shield businesses from asset expropriation and severe currency conversion restrictions.
Bint states, “The sheer number of elections presents increased danger for businesses, particularly given the size of the economies at stake. Failure to protect themselves could leave businesses vulnerable to sudden economic shocks, which can make long-term decision-making very challenging and leaves them exposed to substantial losses.”
Even politically stable countries like the US may experience election-related political violence, as evidenced by the events at Capitol Hill following the 2020 presidential election.
Bint adds, “A surprise election win or radical change in policy can cause a shock to a country’s bond market, risking a shift in interest rates and currency revaluation.”
Moreover, markets can become highly volatile when political candidates with unorthodox economic policies gain momentum.
Countries such as South Africa and South Korea are already witnessing significant bond and stock market volatility in the lead-up to their upcoming elections this year.
Bint highlights the following key elections in 2024 from a political risk perspective:
February 14: Indonesia (legislative and presidential)
April 10: South Korea (legislative)
April-May: India (legislative)
May-June: South Africa (legislative)
June 2: Mexico (legislative and presidential)
November 5: USA (legislative and presidential)
TBD: UK (legislative)
In light of the multitude of elections scheduled for 2024 and the significant uncertainty surrounding their outcomes, it is crucial for businesses to prioritise obtaining political risk insurance. This proactive approach is essential for mitigating potential fallout, such as contract cancellations, political violence, or economic shocks, thereby ensuring businesses are adequately prepared to navigate the challenges ahead.
