4 Strategies for Managing Global Political Risk in 2016
Falling oil prices, plummeting equity markets, social instability, and terrorism: These are some of the political risks facing global businesses today, according to Marsh’s recent Political Risk Map 2016.
Such events put pressure on already-stagnant emerging economies and lead to potential conflicts between global and regional powers. These risks have only intensified as businesses rely more on international operations to drive profitability.
No matter the location of your headquarters or which countries generate the bulk of your sales, your business must now be prepared for political risk to develop in any part of the world — including countries that have long been thought to be safe or stable.
Four strategies can help you minimise your political risk:
1. Manage your credit risk. A government’s inability to honour its financial obligations can quickly spread to the private sector. Take the opportunity now — before a crisis develops — to assess your potential credit risks in the countries where you or your suppliers do business, and review your credit-control procedures.
2. Ensure your supply chain can withstand unplanned disruptions. The complexity and interconnectivity of today’s supply chains means that trouble in just one country can disrupt your entire global network. Work with your risk advisers to develop detailed response plans that consider the need for alternative suppliers or ports.
3. Prepare and protect your people. Political violence or other instability can develop quickly and with little warning. That makes advance planning and testing of communications and crisis plans critical.
4. Use your risk management budget wisely. A credit and political risk insurance policy can provide coverage for political violence, expropriation, currency inconvertibility, non-payment, and contract frustration.
Despite the many geopolitical risks that your business can face, political risk insurance remains readily available. Insurers continue to view political risk as an attractive line of business, and are competing aggressively for new and existing business.
Consider structuring political risk policies to provide coverage for multiple countries — either for a specific region or for a longer list of countries that you can specify. That can allow you to obtain protection even for countries where coverage is often difficult to secure on a single-country basis — for example, Russia. With some rare exceptions, most organisations can purchase multi-country insurance policies at attractive prices and with favourable terms, including broader definitions and multi-year coverage.
Such an approach can help you to avoid taking chances purchasing coverage for individual high-risk countries, allowing you to more effectively protect your assets virtually everywhere that you do business. And in a buyer’s market, now is the time to lock in low rates for the next several years in order to protect shareholder value and drive continued growth in your business.
For more information, explore Marsh’s Political Risk Map 2016.