Political Risk: The New Elephant in the Boardroom

The latest Willis Towers Watson Political Risk Survey reveals a seismic shift in corporate risk priorities: political risk has officially topped the enterprise risk management (ERM) agenda for 2024. With 96% of global firms investing in new risk management capabilities, this is no longer a distant concern—it’s the defining challenge of our era. From Houthi attacks disrupting supply chains to election-driven instability in Mexico and Venezuela, geopolitical volatility is reshaping how companies allocate capital, insure assets, and plan for the future.

The Rise of Political Risk

The survey underscores a stark transition: in 2020, only 30% of companies rated political violence as a top concern. By 2024, 70% reported losses linked to geopolitical disruptions, driven by events like the Russia-Ukraine war and Houthi strikes on Red Sea shipping routes. These incidents are not isolated—they’re part of a broader trend of “gray zone warfare,” where non-declared conflicts (e.g., cyberattacks, infrastructure sabotage) erode global stability.

Key Drivers and Case Studies

1. Supply Chain Vulnerabilities:
   Houthi attacks targeting commercial vessels have forced rerouting, raising costs and delays. The insurance market now classifies such risks as systemic, with rates for political risk coverage rising 5–20% globally (up to 50% for China-linked policies).

2. Election-Driven Instability:

3. Mexico’s 2024 Election: Claudia Sheinbaum’s victory has raised fears of nationalization of lithium and macroeconomic instability, deterring foreign investment.
4. Venezuela: Contested elections and protests have kept underwriters off-cover, while regional spillover risks (e.g., Guyana’s oil reserves) add to uncertainty.
5. Burkina Faso: The military junta’s cancellation of elections and alignment with Mali’s Sabel alliance have destabilized West Africa, prompting insurers to avoid new business.

The Insurance Market Response

The political risk insurance market remains “hard,” with carriers increasingly cautious:
- Multi-country programs: Underwriters favor single-country coverage to limit exposure.
- Self-insured retentions (SIRs): Companies are absorbing more risk, with SIRs rising for complex transactions.
- Geographic constraints: Capacity is tight in high-risk regions like Argentina, West Africa, and China, where premiums now reflect heightened scrutiny of state-backed expropriations.

Interconnected Threats: Beyond Borders

Political risk no longer operates in isolation. The World Economic Forum’s 2025 report ranks state-based armed conflict as the top immediate global risk, up from fifth in 2023. This is compounded by:
- Climate Transition: Extreme weather (e.g., 2024’s Category 5 storm Beryl) and debt-driven austerity protests in Nigeria and Bangladesh amplify political violence risks.
- Technological Disruption: AI-driven misinformation and cyberattacks are now core to geopolitical strategies. For instance, CrowdStrike’s 2024 outage highlighted vulnerabilities in critical infrastructure.

Investment Implications

1. Sector Resilience:
2. Healthcare and Technology: Sectors with high R&D investment and global footprints (e.g., Johnson & Johnson, Microsoft) are better positioned to navigate regulatory and geopolitical shifts.
3. Insurance Giants: Companies like XL Catlin and AIG, which specialize in political risk coverage, could benefit from rising demand, though underwriting discipline will be key.

1. Geographic Diversification:
2. Avoid overexposure to regions with election risks (e.g., Mexico, Venezuela) or conflict zones (Ukraine, Yemen).

3. Favor markets with stable governance and diversified economies, such as Canada or Scandinavia, even if growth rates are lower.

4. Scenario Planning:
   Firms using “storylines” to model cascading risks (e.g., sanctions escalation, supply chain breakdowns) outperform peers. Investors should prioritize companies with transparent risk frameworks, such as Unilever or Siemens, which embed geopolitical analysis into ERM.

Conclusion: A New Era of Risk-Adjusted Returns

The Willis survey data paints a clear picture: political risk is no longer a peripheral concern but the central determinant of corporate resilience. With 70% of companies now suffering losses from geopolitical events, investors must:
- Demand transparency: Look for firms with cross-functional risk teams and scenario-based planning.
- Beware of lagging industries: Sectors like mining and energy face dual threats from sanctions and climate regulations.
- Leverage insurance tools: Political risk insurance remains critical, despite rising costs—75% of losses in 2024 stemmed from uninsured events.

The numbers are stark: firms without robust political risk strategies face an average 15–20% higher cost of capital than peers. In an era where gray zone attacks and election-driven instability define the landscape, only those who prepare today will thrive tomorrow.

The message is clear: political risk is the new bottom line. Ignore it at your peril.