Briefing: Turning point for geopolitical risk in 2024?

By Yiannis Kotoulas

Economic uncertainty, an upsurge in armed conflicts and civil disturbances across the globe and perhaps the biggest election year ever have conspired to create a set of circumstances for 2024 that herald a turning point in the geopolitical environment. 

That turning point – and this time of instability – presents an opportunity for the insurance sector, or so says Howden’s latest report, published last week (26 March 2024). 

The report, entitled 2024: A turning point?, noted that while expectations for 2024 were positive, “businesses and (re)insurers continue to operate in a high-risk environment”. 

In an interconnected, global world that relies on lengthy supply chains, the geopolitical environment and conflicts around the world have impacts on the UK that can be hard to forsee. 

For example, when Russia invaded Ukraine on 24 February 2022, the conflict may have looked far away to many in our country, but the shocks on the UK insurance market were soon felt.

As the shutting down of steel mills used to produce materials for car parts that enabled vehicle repairs skyrocketed the prices of used vehicles and added pressure to the already difficult profitability of motor insurers. 

And with new conflicts having sprung up since then, such as the war in Gaza and the related Yemen-based Houthi attacks on shipping through the vital Red Sea route, there are sure to be further local impacts from global events that insurers must be ready to mitigate for their clients.

Indeed, Howden’s report noted that “missile and drone attacks on commercial ships in the Red Sea are the latest shocks to global commerce and supply chains” alongside resurgent Somali pirate activity, which has led to much longer journeys for global shipping as marine traffic diverts around the Cape of Good Hope. 

Closer to home

While global events can have indirect effects on the UK, those working in terrorism and political violence lines should will also be aware of the heightened risk of domestic disturbances. 

Last summer, I wrote about how the French riots spurred by the police shooting of 17-year-old Nahel Merzouk were evidence of the potential systemic risks of civil unrest. 

And in Howden’s latest report, data showed that riots in the developed G20 group of countries had been on the rise since the turn of the decade in 2020.

Insured global losses from civil unrest during this period reached the $7bn mark, which indicates “how the scale of events and losses are now spiralling”. 

Howden’s report noted: ”The stakes are high. Grievances tied to the rising cost of living, food and energy insecurity, falling real incomes, high levels of debt and perceived poor governance and corruption – inflamed further by populism and polarisation – are eroding social cohesion.”

Sound familiar? Most of these factors have been facts of life in the UK – and political tension will only rise as this year’s election looms closer. 

The UK has been stubbornly resistant to the sort and scale of political unrest seen in many other developed nations, but the insurance industry would not be doing its job were it to just assume that this will continue to be the case. 

Howden said: “With elections in 2024 set to introduce an additional dose of unpredictability into an already volatile environment, businesses need to prepare for and protect themselves against escalating political-related risks. 

“Such a backdrop not only brings direct financial risks from property damage and business interruption, but can also threaten operations, personnel, supply chains and reputations.”