Reinsurers predict that demand for political risk insurance will remain
Global reinsurers predict that 2024 will bring increased political risk due to a surge in planned elections around the world.
This escalation is raising concerns about potential political upheaval, prompting increased demand for political risk insurance among companies around the world as they try to protect themselves. Accordingly, the need for reinsurance will also increase.
The analysis shows an 18% increase in the number of national elections expected in 2024, from 55 in 2023 to 65 in 2024.
The countries with elections scheduled for 2024 have a combined GDP of $44.6 trillion, which is 44% of global GDP. This is a significant increase from the previous year, when the GDP of countries hosting elections was $12.6 trillion, or 12.4% of global GDP.
Underwriters are stressing a sharp increase in political risk insurance because of the high voter turnout expected in this year’s elections. Companies around the world will be scrambling to protect themselves against the cancellation of government contracts or financial losses due to civil unrest or political violence, insurers say.
To mitigate the risk of public sector contract termination or non-payment, businesses are increasingly turning to ‘contract breakage’ insurance. This trend is particularly noticeable after a change of government, especially when countries are facing financial stress.
Government creditors may also choose to cover political risks to protect against the risk of the nation defaulting on its debts after an election. This type of insurance can also protect a business from asset expropriation and severe currency conversion restrictions.
The sheer number of elections poses a heightened risk to business, especially given the size of the economy at stake. Failure to protect itself can leave businesses vulnerable to sudden economic shocks, which can make long-term decision-making very difficult and lead to significant losses, experts say.
Even politically stable countries such as the United States can experience election-related political violence. A surprise election victory or a radical change in policy can cause a shock to the country’s bond market, risking a change in interest rates and a revaluation of the currency.
In addition, markets can become very volatile when political candidates with unorthodox economic policies gain momentum.
Countries such as South Africa and South Korea are already seeing significant volatility in their bond and stock markets ahead of upcoming elections this year.