Impact of 2024’s global elections on political risk insurance

2024 has been the most significant election year in modern history, with over 70 countries going to the polls. Elections across the globe are reshaping national policies, governance structures, and international relations. These electoral outcomes not only influence economic conditions, but also raise potential risks which companies and their investors need to navigate.

For political risk (PR) and political violence (PV) insurers, this presents both significant challenges and opportunities. As the world’s political dynamics shift in response to these elections, PR and PV insurers must reassess their risk models, potentially adapt coverage strategies, and prepare for the broader implications of these pivotal events. The ability to anticipate and manage political risks will be crucial for safeguarding investments and mitigating exposure.

Significant shifts across global markets

In recent years, political polarisation has intensified, particularly in key markets such as the US, the EU and Latin America, creating a climate of heightened uncertainty for foreign investors. Populist movements, often marked by nationalist or anti-establishment sentiments, have gained ground, leading to unpredictable shifts in governance. Whether these shifts are left or right-leaning, they can result in significant policy changes which directly impact the stability of markets, including trade barriers and nationalisation efforts.

In Latin America for example, the radical economic policies of Argentina’s president Javier Milei point towards future volatility, and Mexico's new president, Claudia Sheinbaum, maintains political stability but faces challenges from rising violence. The African continent has seen coups in Niger and Gabon and civil war in Sudan. South Africa’s general election produced a coalition government, fuelling uncertainty during an ongoing energy crisis.

In the US, Donald Trump’s victory in the presidential election will undoubtedly bring significant policy shifts. He has indicated his intentions to ramp up fossil fuel production, recalibrate foreign relations with China and NATO, and implement domestic reforms impacting global environmental agreements and trade partnerships. These could particularly destabilise supply chains for companies reliant on Asia-Pacific markets.

Across the EU, elections have highlighted rising populist sentiments and growing divisions among member states; France’s hung parliament and the strong showing of far-right parties, such as Germany’s Alternative Für Deutschland and Austria's Freedom Party, signal potential obstacles to further European integration.

Sudden alterations in trade relations, economic policies, and regulatory environments will likely alter the risk profile for multinational companies operating in these regions, prompting insurers to reassess coverage in light of evolving geopolitical dynamics.

Polarising election results can ignite significant civil unrest, particularly in countries with fragile democracies or deep political divides. For instance, in India, where political polarisation is increasingly pronounced, its general election this summer saw the increase of ethnic tensions and violence in the Manipur region. In Georgia, protests have erupted following the October 2024 re-election of the governing Georgian Dream party, which many are alleging was illegitimate.

The growing importance of PR and PV insurance

For PR and PV insurers, these developments mean a growing need to provide and adapt coverage solutions. The volatility in political landscapes may require insurers to offer more tailored policies that can address these rapidly changing risks, as policyholders seek broader (or perhaps more defined) cover which offers adequate protection in an increasingly unpredictable global environment.

PR insurance can provide policyholders with a wide scope of cover against such shifts in trade and economic policies such as CEND (Confiscation, Expropriation, Nationalisation and Deprivation), selective discrimination, forced abandonment, currency inconvertibility and credit risks. PV insurance provides cover against loss or damage to insured property arising from certain perils which are typically beyond the scope of standard PR policies, such as riots, strikes, civil commotion, war and business interruption. PV insurance can either be included in PR policies, or can purchased as its own standalone policy.

Civil unrest in recent years has tested the definitions of traditional perils covered by PV policies, including sabotage, terrorism, strikes, riots and civil commotion. Issues have arisen where the scope of perils covered under the PV policy differ from those excluded by the insured’s separate all risks property cover. Further, whilst there is a body of case law in England on the meanings of traditional PV perils, if a different law and jurisdiction governs the relevant policy insurers will need to be mindful that the relevant jurisdiction may take a different view on the meaning of the various perils.

Comment: Strategic adjustments for PR and PV insurers

PR and PV insurers may wish to reassess their risk models in light of the outcomes of the 2024 elections. The political climate is shifting rapidly, and may continue to do so. While the number of significant elections taking place in 2025 will be smaller, anti-incumbent feeling remains high. Businesses’ growing concern about global instability has been reported in the Bank of England’s most recent Systemic Risk Survey (UK-focused), which highlights that firms see geopolitical risk as the 'number one' source of risk to the UK financial system, referencing ongoing conflicts and global elections as key concerns.

Insurers therefore need to be flexible and responsive, adjusting to account for rising social unrest, policy shifts and geopolitical risks that may follow election results.

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