Lloyd’s emphasizes unpredictability of political risk

Despite the insurance industry’s efforts to predict potential risks with a view to preparing for the worst, political risks remain a highly unpredictable area according to a recent posting on Lloyd’s Web site.
Lloyd’s online article, “Preparing for Political Risk,” is an analysis of Aon’s recently-published 2007 “Political and Economic Risk Map.”
According to Aon’s map, political risk has improved worldwide. Overall, the map shows that out of 214 countries surveyed in 2006, 17 pose less of a risk in 2007 compared to 2006.
But insurers still need to be wary of political risk, Lloyd’s article notes.
“You can look at the political risk map as a prima facie indicator of countries which will be seen as hot spots when it comes to political risks,” David Wright, XL Insurance’s practice leader for war and political risks, is quoted as saying in the Lloyd’s article. “But as history has proven, there are two categories of events – those which might reasonably be foreseen and those which are pretty much unexpected.”
Wright says the Nigerian elections may well lead to increased disruption and political violence in the country. “But the second category is more difficult,” he says. “Looking back, in 2006 we could not have foreseen the war in Lebanon or the coup in Thailand, which took most people by surprise.”
Wright says on Lloyd’s Web site that the modus operandi of the political risk market has always been to pick the right risks. “This strategy can provide good underwriting opportunities even in countries that are in the higher risk categories,” Lloyd’s paraphrases Wright as saying.