What global activism can teach insurers about emerging risk

This article first appeared in Insurance Day, February 2022.

The risks causing the biggest problems for insurers and their clients relate to environmental, social and governance (ESG) factors such as pollution, corruption and disease, according to a report into the global political landscape.

The top three demands by citizens were to protect the workforce, protect consumers and protect the environment.

The findings in the report, which was commissioned by Kennedys and took an in-depth look at 12 different countries to identify the issues most likely to affect insurable risks, are based on the extent to which each issue causes significant negative impacts on communities: the lower the score, the lower the negative impact and the reduced likelihood of public sentiment translating into political action. As well as global themes, the report also identified a number of key regional differences.

In Latin America, for example, concerns were concentrated on issues such as corruption and organised crime, whereas the US recorded more positive scores than the global benchmark (the combined, global average) on just about every measure with one exception – US respondents were more likely to associate immigration with negative impacts than most other surveyed countries.

The UK, Ireland and Australia all came out bottom of the risk spectrum, with the UK ranking the best globally – a strong and somewhat surprising result, given the recent instability resulting from Brexit and the COVID-19 pandemic.

Effecting change

One common theme running through the whole report was the real influence people power can have in effecting change, both to regulation and legislation, and the corresponding action required by businesses and insurers.

One common theme running through the whole report was the real influence people power can have in effecting change, both to regulation and legislation, and the corresponding action required by businesses and insurers. In one sense, it would be easier and quicker to say the ways in which geopolitics does not have an impact on insurers and while some events grab the headlines, others are more subtle.

The Chilean government’s introduction of a modest increase to the subway fares in October 2019 became the catalyst for a well-publicised wave of civil unrest. These demonstrations were not about the Peso30 increase, but as a response to the previous 30 years of government reforms including healthcare and pensions privatisation, along with a more open-door policy on immigration.

As the events were political and not terror related, the losses sustained were covered by corporate political risk management policies. Therefore, while Chile did not experience the same coverage issues witnessed in other countries, it did ultimately lead to a sharp increase in insurance premiums, thereby resulting in affordability and market capacity problems.

In Thailand, political instability has become a key business risk factor following the coup d’état in 2014 and the more recent political demonstrations during 2020 and 2021. Corporates can put political risk and business interruption insurance in place to address these risks and for those with insurance coverage, the insurance industry has performed well in recent months.

As in other countries, insurers have also reviewed the standard wordings for infectious diseases clauses, as well as the various other clauses that might be deemed to cover pandemic risks. But claims have been largely paid out.

The Gilets Jaunes protests in France, triggered by rising fuel costs but culminating in a stand against the government’s free market policies, resulted in more than €200m ($226m) of insurable damages, as well as several hundred injuries including some deaths, through more than a year. This resulted in legislative action, including in response to climate change – an issue the research showed as ranking highly among French citizens. In April 2021, parliament voted to suspend domestic flights on routes that can be travelled by direct train in less than two-and-a-half hours, as part of a series of climate and environmental measures.

For firms operating in Israel, the complex political landscape has always been a business risk. As such, successive governments have built robust frameworks for protecting businesses, citizens and Israel’s vital economic assets. Operating in a region that has historically been volatile, the business community and citizens have become adept at preparing for civil unrest and security threats. This had the unexpected benefit of enabling the country to be able to switch instantly to remote lifestyles when the pandemic hit in 2020.

This complex security environment has involved developing a pooled approach between the state, insurers and corporates with the cost of compensation for war and terrorism being shared. Other countries now finding themselves having to respond to increased terror related incidents could learn important lessons from Israel.

Geopolitical risk

The fallout from the pandemic has heightened the geopolitical risk to insurers. It has caused increasingly fragile states, exposed political insecurities, diverted government resources and aggravated mental health problems, making people more vulnerable and susceptible to joining movements for change.

The fallout from the pandemic has heightened the geopolitical risk to insurers. It has caused increasingly fragile states, exposed political insecurities, diverted government resources and aggravated mental health problems, making people more vulnerable and susceptible to joining movements for change.

Workers are more likely to become disenfranchised and demand better pay and conditions, which can result in strikes and subsequent insurance claims, under both employment and business interruption policies.

The report reveals a wide range of community-led demands placed on businesses. Citizens and civil society groups have found a growing range of means to make their voices heard in corporate boardrooms.

Globally, 17% of respondents said they would be likely to join street protests, 26% would join organised online protest groups and 37% would boycott a company’s products.

This demonstrates citizen power can affect business operations not just in physical form, but digitally and through their wallets and investments.

The geopolitical landscape is in a state of flux as it repositions itself after some significant changes. It is unclear what the new order will look like, but the transition and the uncertainties that come with it pose a significant risk. This shift is happening against a backdrop of digital disruption.

Understanding the political direction of travel at a country level is increasingly significant for businesses operating across international borders and as citizens come to exercise greater influence over public policy, so the legislative and regulatory landscape evolves – having a direct impact on insurers.

Historically, some countries have suffered coverage problems resulting from whether political demonstrations are defined as acts of civil unrest or acts of terrorism; in line with international practice, most policies do not specifically cover terrorism. For this reason, risk management is not simply a matter of having insurance coverage in place.

Kennedys’ report demonstrates how salient macro-political issues are among grassroots communities, providing businesses and their insurers with a clear understanding of emerging risk to enable long-term sustainable operations.

The findings highlight how consumer data can provide an additional early warning system on new risks and therefore be used to inform corporate strategy and inward investment. The growing importance of engagement with public policy discussions is clear, as is – crucially – the critical role of insurers in this picture through building resilience to risk, including through the deployment of insurtech innovation. 

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