Over the past year, 47 countries have witnessed an uptick in civil unrest, and the number of countries considered an “extreme risk” to businesses has increased by 66.7%, according to a new report by global risk consultant Verisk Maplecroft.
The quarterly Civil Unrest Index, which uses 11 indicators including inflation and subsidy cuts to inform its data, reveals that civil unrest intensified during the last quarter of 2019 across countries including Chile, Nigeria, Venezuela and Lebanon. Sudan, meanwhile, overtook Yemen as the highest risk country globally.
An “extreme risk” rating – which currently applies to the countries already mentioned plus an additional 14 – reflects the highest possible threat to business disruption, damage to company assets and physical risks to employees as a result of unrest in a country. Sectors including mining, energy and financial services have all been adversely impacted by the increasing instability across regions, says the report.
Situations are not forecast to improve soon either; the report holds a gloomy outlook for 2020, predicting that 75 countries will see civil unrest rise during the next six months. As such, it says, businesses and investors must learn to adapt to this growing instability.
As well as posing major risks to businesses, current unrest and political volatility are having a knock-on effect on insurance claims. “The insurance market has certainly seen claims from the increased level of civil unrest in Central America, Latin America, Hong Kong and elsewhere. But they affect different parts of the insurance market differently,” Charles Berry, chairman of BPL Global, a global insurance company, tells GTR. He says that both political risk insurers and general property insurers have paid asset damage claims arising from civil unrest in Central America, for example. He says that the more serious the violence, the more likely that covered losses will fall to the political risk insurance (PRI) market.
The report and Berry’s comments echo research by export credit and investment insurance association the Berne Union, which found that there was a 50% increase in new PRI cover issued by its members in 2019, triggered by an increasingly unstable geopolitical landscape.
While only a small amount of total insurance claims made in 2019 by Berne Union members were for PRI business specifically – compared with medium and long-term and short-term business, which covers both commercial and political risks – the Berne Union says that when it comes to measuring political risks, the situation is blurry, as the definition is narrow and broader political issues play a role in commercial risks. “What we’ve seen in our members’ data is that political claims have made a comeback,” Vinco David, the Berne Union’s secretary general, told GTR in a previous interview.
However, political risk insurance underwriting is not about predicting where business losses will occur or where civil unrest will increase. Berry explains that risks are only insurable if they are unpredictable and underwriting is about spreading risk and charging premiums that reflect risks. “Clients should remember that when buying cover. Don’t try and guess where the losses will occur. Insure the exposures you cannot afford to lose,” he says.
Not business as usual
Chile and Hong Kong have both been hit with civil unrest and protests over the past year, causing them to move up the index.
Chile. Civil unrest has come at a cost for the country. Just one month of unrest alone caused an estimated US$4.6bn-worth of infrastructure damage and cost the Chilean economy around US$3bn – roughly 1.1% of its GDP, the report says.
The unrest in the South American country has been driven by social issues: income inequality, privatisation and high living costs, with the initial trigger being an increase in the price of metro tickets in October. The instability has caused Chile to climb in the Civil Unrest Index ranking from 91 in early 2019 to the sixth riskiest market at the start of 2020, out of 198 countries. The report says subsidy cuts were the single biggest indicator that the risk of civil unrest was growing in Chile.
“The lesson from the unrest in Chile is you never really know where it’s going to happen next. The market has looked at Chile as being the most stable and advanced economy in Latin America,” says Berry. “But while Chile may be the richest country there, it is also one of the most unequal societies in the world and that has been the cause of the problem. I think there is a consensus growing that inequality in a country, rather than the absolute level of economic development, is a greater cause of instability. But ask me where we are going to see instability next, and the honest answer is, I don’t know, and nobody knows.”
Hong Kong. Another country which has escalated in the risk ranking is Hong Kong, moving from 117 to number 26. Protests erupted in June 2019 over a proposed bill that would have allowed the extradition of criminal suspects to mainland China. Opponents of the legislation said this risked exposing the people of Hong Kong to unfair trials, arguing the bill would also give China greater influence over Hong Kong.
In November, the territory held local council elections that were considered an indicator of public opinion. The vote saw a nearly unanimous victory for the pro-democracy movement, with 17 of the 18 councils now under the control of pro-democracy councillors.
More recently, however, protests broke out again in Hong Kong over government plans to use an unoccupied housing estate as a coronavirus quarantine facility, according to media reports. Protesters said that the medical centre would be too close to their homes.