Social media fuels political risk in emerging markets

A briefing by Marsh's Political Risk and Structured Credit Practice in conjunction with Eurasia Group, the global political risk research and consulting firm, said that as the influence of social media grows, particularly in emerging economies, businesses must consider the potential impacts of social media on their own operations and factor them into their global political risk management strategies. Marsh said that the majority of the growth of social-media users is expected to come from emerging markets across the Middle East, Africa, Latin America, and Asia. "Social media in these regions has already catalysed unrest and accelerated the process of societal and political change in several countries. For businesses operating in these countries, such unrest can translate into a variety of political risks, including expropriation actions, forced divestiture, political violence (including forced abandonment), business interruption and contingent business interruption, contract frustration, and trade disruption," said the briefing.hideAccording to Marsh, social media can exacerbate these political risks in four main ways: Social media can accelerate the formation of political protests and resistance, frequently with little warning even in countries that have historically been considered 'stable', making it difficult for businesses to maintain cash flows, safeguard corporate assets, or evacuate employees from dangerous locations. The global nature of social media can enable civil unrest to more easily and quickly transition from a single-country phenomenon to a regional event. Social media users frequently target individuals and organizations perceived as being friendly or close to unpopular regimes, potentially leading to a loss of income for some businesses. Authoritarian governments may use social media to deflect popular discontent away from political leadership and toward foreign entities or companies that may be instigating or playing a role in fuelling unrest. As Marsh noted, the use of social media does not necessarily create new risks for companies operating in potentially at-risk countries. "But social media does seem to increase the speed at which instability can develop by giving disaffected populations a new and often more powerful outlet through which they can launch political demonstrations. All of this means that the frequently used 'rear-view-mirror' approach, forecasting risk by examining past events, will no longer suffice, said the briefing. It went on, "Instead of targeted and 'just-in-time' political risk management, a broad, multi-country and multi-hazard approach to managing political risk is more practical and effective." This includes the purchase of broad, multi-country political risk insurance policies and detailed planning to ensure business continuity and the safety of employees and key assets. Marsh highlighted the point that, rather than purchasing political risk coverage for a specific risk in a single country, multinational businesses are increasingly purchasing multi-country policies, often covering 10 to 20 or more countries, that insure a broad range of risks, including: expropriation, forced divestiture, political violence (including forced abandonment), business interruption and contingent BI, contract frustration, trade disruption, currency inconvertibility and foreign exchange transfer. In the briefing, Marsh said it was important to note that some exposures related to social media will not be covered by political risk insurance. For example, it said that the loss of customers through an organised but non-violent protest will not trigger a political risk insurance policy. Businesses should also keep in mind that political risk insurance provides coverage for property and assets but not employees, said Marsh. And finally, it concluded that businesses should work with their insurance advisors to carefully consider all appropriate coverages for the countries in which they do business - including those related to reputation risk, cyber/privacy, casualty, property, and terrorism. To access the brefing go to http://usa.marsh.com/NewsInsights/MarshRiskManagementResearch/ID/33303/Social-Media-Heightens-Political-Risk-in-Emerging-Markets.aspx

Social media fuels political risk in emerging markets

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