Demand for political risk coverage to increase in 2006

Demand for political risk coverage will increase in 2006, Aon predicts, based on trends identified in the company’s Political and Economic Risk Map.
Published recently, Aon’s map suggests political interference poses the greatest threat to global businesses, followed by legal and regulatory issues and sovereign non-payment.
The map includes recent examples of supply chains being disrupted, including the:
Russia/Ukraine gas pipeline dispute
Longshoremen’s strike on the US west coast
Suez Canal blockage caused by a tanker breakdown
SARS respiratory disease outbreak in China.
The map also notes potential risks to the supply chain going forward, including labour unrest in Brazil, political violence in Israel and a financial systems crisis in China.
As businesses become more aware of the dangers of political instability and the need to comply with international corporate governance best practice, more are seeking insurance cover to mitigate overseas risk, Aon notes.
“Uncertainty brings significant risk exposure for investors and traders,” Charles Keville, a director in Aon’s crisis management team, says. “As trade and resources become increasingly globalised, businesses must research and understand the political climate of unfamiliar countries to protect themselves and their investments from political unrest.
“Assessing political risk is an ever-changing process and one that is continuously being influenced by global events. Although we have seen a number of territories [23] upgraded this year, these improvements in risk status are relatively slight. Political risk is becoming increasingly complex and the insurance market is having to adapt its products to meet the needs of international businesses.”
For example, says Aon, sophisticated product development means offering policies that can cover an individual contract or investment, the offshoring of business processes to countries such as India, commodity price hedging and capital markets guarantees.