Geopolitical Risks Could Disrupt Your Operations
Geopolitical Turmoil Stirs Up BI Risk
Think natural catastrophes are your organization’s main — or only — business interruption (BI) concern? Think again. Geopolitical conflicts bring an increased danger of BI losses, and, according to the World Economic Forum’s Global Risks 2015 report are the biggest threat to global stability.
Global Conflict Impacts Business Strategy
Although countries with increasing geopolitical risks may be less desirable places to do business for some multinational organizations, they represent significant opportunities for others. But if political instability and regional violence interrupt business operations, the result can be significant financial loss.
Examples such as economic instability in Greece, Argentina, and Brazil; political tensions between Russia and the North Atlantic Treaty Organization (NATO); and turmoil in the Middle East and North Africa all show the potential to significantly disrupt business. Events can quickly impede the global production, sale, and flow of goods and services.
Meanwhile, many companies may not be ready to handle a BI loss. During a recent Marsh webcast, about 60% of audience members said they were unsure whether their organizations were fully prepared to manage the financial consequences of BI losses.
For companies with operations in volatile regions, business interruption losses could stem from threats such as:
- Property damage and theft.
- Disruption to contracts for both purchase and supply.
- Late payments that impair cash flow.
- The need to evacuate and/or relocate employees.
Addressing the Risks
Multinational organizations can take several steps to manage BI risks related to geopolitical threats. For example, you should:
- Develop and test business continuity plans.
- Conduct scenario testing.
- Develop security plans that address, among other things, physical assets, employees, and sensitive company information, including crisis management response measures.
- Coordinate BI insurance with other coverages, including political risk insurance.
- Be prepared to gather appropriate information in the event of a claim, including recording any damage via photographs and video.
- Maintain separate accounting codes to identify all costs associated with the potential damage.
For more on how to manage business interruption risks, read Marsh’s Business Interruption Center of Excellence's report, Business Interruption Insurance Efficacy: Five Key Issues.