Over nine in ten companies have suffered a political risk loss in the past year, transforming the risk from a low frequency, high severity peril into “everyone’s risk", according to analysis carried out by WTW.

The firm's sixth annual report into political risks is based on data from interviews carried out by Oxford Analytica in January and February 2023 with 50 large corporates, half of which have revenues in excess of US$1bn.

It found that 92% of all responding companies experienced a related loss in 2022, up from 35% in 2020.

Some 86% of Western European respondents reported a net negative financial impact from the conflict in Ukraine; 33% in North America. Forty eight per cent of respondents meanwhile reported a direct political risk loss in one or more BRIC countries.

All of the companies responding to the interviews reported having enhanced their political risk management capabilities since February 2022, with 68% now purchasing political risk insurance (compared with 25% in 2019).

The ongoing conflict in Ukraine and resultant humanitarian consequences have had a business impact that one European respondent described as “devastating”. A US technology-company respondent said: “We have decided to end all our operations in Russia and Belarus. We suffered a loss of almost US$1bn.”

Looking to the year ahead, Ukraine heads the list of interview panel members’ top risks for 2023, followed closely by decoupling from China and crisis and new regulations in the EU.
European crisis/regulation, economic nationalism, ESG, US uncertainty, social instability in the developed world, contested geopolitical alignments and uncertainty in Taiwan featured on the list of subsequent risks.

“Panellists were worried about the escalation of the conflict in Ukraine, but more worried about complications like sanctions and inflation,” said Sam Wilkin, director of Political Risk Analytics at WTW. “They’re worried that they could be arrested for facilitating avoidance of sanctions, for example, or that they could be pressured to renegotiate energy contracts next autumn. At the same time, they have more profound concerns about how globalised business models can be made to work in a politically divided world.”

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