Supply chain disruption driving political risk losses, finds WTW
More than half of losses above $50m
The majority of multinational companies (76%) suffered a political risk loss in the past year, with supply chain disruption due to geopolitical events the most common cause at 69%, according to WTW and Oxford Analytica.
Publishing its annual political risk survey of clients, which is weighted towards the world’s largest multinationals, WTW finds that almost half of firms that incurred a political loss saw the costs exceed $50m.
WTW said alarm among the survey’s respondents last year has translated into action. Almost all (96%) firms have invested in new political risk management capabilities, including enhancing corporate processes from ERM to strategic planning, and set up cross-functional teams and new hires with expertise in geopolitics or intelligence.
“After a couple of challenging years, companies seem to have accepted that significant political risk losses are the new normal, and are working on building risk management capabilities,” said Sam Wilkin, director of political risk analytics at WTW. He noted that only 30% of respondents in the broker’s 2020 survey said they were concerned about political violence, but this has escalated to 50% experiencing an actual loss.
The Ukraine war now polls as the top political risk, with 20% of respondents reporting a material negative financial impact from the conflict. This compares with 4% from the conflict in Gaza. The spate of elections this year ranks as the second-highest political risk. WTW finds that 64% of respondents are concerned about political risk in North America, on par with Asia.
But there is most concern about political risk in Europe at 84% and in line with last year’s poll. This figure has risen significantly from 63% in 2022, when concerns about political risk in Asia were dominant.
“In 2022, respondents said they were more concerned about political risk in Asia than in Europe, even though the survey was conducted as Russian troops massed on the Ukrainian border. In 2023 and this year, somewhat belatedly, concerns about political risk in Europe topped the charts,” Wilkin said.
WTW says Houthi attacks on ships in the Red Sea has helped trigger concerns about gray zone aggression – actions to weaken a country by any means short of war, including sabotage and cyberattacks.
Gray zone threats have entered the top ten political risks facing companies for the first time in the WTW survey. State-sponsored supply chain disruption polled as the top gray zone concern for 62% of businesses for the first time, replacing state-sponsored cyberattacks, which fell out of the top three.
“Traditionally, offshore assets, from ships to oil platforms, have been seen as low risk, because they are out of harm’s way. But new technologies (such as drones) that enable remote attacks have become more widely available, and these hard-to-defend assets are ideal gray zone targets, especially when located in international waters,” Wilkin said.
Top political risks 2024, WTW and Oxford Analytica
- Ukraine complications and escalation
- Year of elections
- US-China rivalry
- Uncertain climate policy
- Mismanaging China risk
- Middle East escalation
- The next big conflict
- Home-market growth slowdown
- Institutional decay
- Gray zone action
Top countries where respondents experienced a political risk loss 2024, WTW and Oxford Analytica
- Russia
- China
- Red Sea
- US
- Ukraine
- Argentina
- France
- Singapore
- Indonesia
- Palestine
