Geopolitical risk: are business leaders complacent about the threat?

From Western Europe, the world looks like a very different place now to three months ago. However, the view from across the Atlantic is perhaps less tinged with existential fears prompted by Russia’s invasion of Ukraine. Despite the US government’s pledges of billions of dollars of military aid for Ukraine, there is still it seems a sense that the conflict is a distant issue for many US business leaders.

In Beazley’s latest research this difference of view showed up in US business leaders feeling eight percentage points more resilient when it comes to dealing with war & terror risks than their UK counterparts.

The US is perhaps less vulnerable to world events that impact other global markets. This is in direct contrast to the UK which, is dependent on foreign trade, particularly in services, or is perhaps just simply located nearer to Ukraine.

While many UK businesses may only have limited direct exposure to the Ukraine war in terms of physical assets, the secondary effects of the conflict, particularly around the disruption to supplies of energy and key commodities are finding their way into significant hikes in food and energy prices, while the US market has more available national resources in staple food stuffs and energy.

Proximity clearly plays a leading role for UK businesses with respect to war & terror exposures arising from the war in Ukraine, but US businesses are perhaps more focused on relations between the US and China. In particular, the role East Asia plays in the supply chains of key industries such as technology and automotive manufacturing.

Alongside this, Beazley has noted in previous Risk & Resilience reports that US businesses are generally more upbeat about the prospect of risk, and tend to feel more resilient to them than UK firms. This is certainly true for the geopolitical risks covered in this year’s report.

Whatever the cause of the disparity in thought, figures for both countries hint at a worrying level of complacency around war & terror exposures in general, and political violence risks in regions that have recently suffered civil unrest. So that while resilience across war & terror and political risks was down in both the US and UK, compared with last year, it is notable that war & terror remained the area of least concern, with only a fifth of businesses in both countries listing it as their top risk. Political risk also slipped down the geopolitical risk rankings, remaining a leading concern for around only a quarter of businesses in both territories.

Change in geopolitical resilience 2021-2022

As the world becomes a more dangerous place, businesses need to reflect on the true nature of the risks they are facing and look at how they can pre-empt the potential problems, mitigate any damage as events unfold and recover once the worst is over. Insurers have a role to play in this, helping our clients assess the risk and using risk management to minimise the threat. In the end, insurers also have an important role to play in indemnifying their clients, to help them get back on their feet in what is an increasingly unpredictable risk environment.