It seems as though every year is more turbulent than the last in terms of political risks and tensions.
According to Marsh's recently updated political risk map, 2018 appears to be no different.
The map, based on BMI Research findings, highlights changes during the past 12 months, and looks ahead to continuing risks and new concerns. The map notes increasing tensions stemming from North Korea's ongoing missile tests — despite what the world witnessed in South Korea during the 2018 Winter Olympics.
BMI Research also finds continuing risk of increased global trade protectionism, predicting that "trade giants" such as the U.S. will try to obtain further trade restrictions in 2018. This comes after a brief decline in the implementation of trade restrictions in 2017.
Political succession also remains a major risk across the globe, especially in Africa, along with the threat of terrorism, as shown by incidents in Europe, Africa and Asia, for instance.
The following is a look at key developments in each region that are likely to impact political risks in 2018.
|North America
According to the Marsh report: "Since President Trump's inauguration in January 017, changes in U.S. policy have been somewhat unpredictable." Marsh and BMI Research expect the situation to continue into 2018, and they see trade with China as a key target.
Midterm elections in the U.S. could result in a shift of seats from Republicans to Democrats, with the potential for more political gridlock, not less.
The unstable relations between the U.S. and North Korea continue in 2018, resulting in a risk of a missile attack by North Korea that would lead to U.S. military action.
|Latin America
There is a high risk of political instability in Latin America as Brazil, Colombia, Mexico, Paraguay and Venezuela plan to hold presidential and legislative elections in 2018. BMI Research noted that, throughout 2017, Venezuela experienced continued unrest as a result of its economic crisis. Suriname also faces increased political turmoil from its own economic crisis and the continuing murder trial of President Desi Bouterse.
Related: Protests, riots, and loss of business income
|Europe
Brexit — the UK's planned withdrawal from the European Union — is the primary political risk for this region. Companies should be prepared for the possibility that the UK will leave the EU without an orderly transition period, leaving many questions unanswered.
Spain continues to face a push for independence by Catalonia, but the government has refused to recognize the pro-independence movement.
Terrorism continues to be a significant political risk and security concern as a result of 2017′s attacks in Barcelona, London, Sweden and other parts of Europe.
|Africa
BMI Research noted that succession risks in Africa, "reached a decisive peak in 2017." Zimbabwe's transition of power from Robert Mugabe to Emmerson Mnangagwa appears to have been a smooth one so far, reducing the political risk in that country. Angola also experienced a smooth transition from longtime President Jose Eduardo dos Santos to Joao Lourenco in September 2017.
In other countries, the picture is not so positive. The recent elections in Kenya and Gabon were contested, and Cote d'Ivoire faces army mutinies as well as much political maneuvering to see who will succeed the current president in 2020.
The Democratic Republic of the Congo retains its dubious distinction as one of the most unstable countries in the world, due to uncertainty over when elections will be held, weakening presidential authority and increased violence by armed groups.
Related: 7 reasons to consider a stand-alone terrorism policy
|The Middle East
The chance of violence in Syria, Iraq, Bahrain and Yemen persists despite the subsided threat from the Islamic State. Tensions between Saudi Arabia and Iran remain high, along with ongoing conflicts between Israel and Hezbollah in Lebanon and Israel and Hamas in Gaza. In addition, Israel is facing the risk of a new Palestinian uprising.
|Asia/Pacific
In addition to the tensions between the U.S. and North Korea, disputes over the ownership of islands in the area continue between China, South Korea, Japan and Vietnam. Another factor increasing risk in the area is the slowdown in China's economy in 2017 after several years of exponential growth.
|Measuring and mitigating risk
Despite political instability and other global risks, multinational organizations can't stop doing business abroad. So what should risk managers be doing to measure and mitigate risk for their companies?
As this report points out, although it's not possible in most cases to control political risks, businesses can obtain credit and political risk insurance to limit their losses. Terrorism insurance may be appropriate, but coverage on a claim may depend on the way an incident is characterized by the government of the country in which the incident occurred.
Risk managers should consult their agents or brokers as well as internal stakeholders to ensure that they have the correct coverage for the risks their business may encounter around the world.
You can see an interactive version of Marsh's Political Risk Map 2018 on Marsh's website.
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Rosalie Donlon
Rosalie Donlon is the editor in chief of ALM's insurance and tax publications, including NU Property & Casualty magazine and NU PropertyCasualty360.com. You can contact her at [email protected].
