Political Risk loss frequency surges in 2022 to become “everyone’s risk” as Ukraine war delivers widespread financial losses
April 18 2023 - 3:02AM
Nine out of ten companies have suffered a political risk loss in
the past year, transforming Political Risk from a low frequency,
high severity peril into “everyone’s risk,” according to How are
global businesses managing today’s political risks a new report by
WTW (NASDAQ: WTW), a leading global advisory, broking, and
solutions company.
The 6th annual political risk survey produced by WTW, found that
a 92% of all responding companies experienced a political risk loss
in 2022, up from 35% in 2020. Other findings include:
- 86% of Western European respondents reported a net negative
financial impact from the conflict in Ukraine
- 33% of North American firms suffered a net negative financial
impact
- 48% of respondents reported a direct political risk loss in one
or more BRIC countries
- 100% of responding companies enhanced their political risk
management capabilities since February 2022
- 68% now purchase political risk insurance, compared to 25% in
2019
- Nearly 50% predict deglobalization will “greatly
strengthen”
- 42% say decoupling from China will “greatly strengthen”
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 $1 billion.”
Top Risks 2023, respondent mentions |
Ukraine |
13 |
Decoupling from China |
12 |
European crisis/European rules |
10 |
Economic nationalism |
7 |
Serious ESG |
6 |
US uncertainty |
6 |
Rich-world social instability |
5 |
Contested geopolitical alignments |
4 |
Taiwan |
4 |
Bigger government |
4 |
Whatever the financial impact, the shock of war on the European
continent had triggered a “paradigm shift,” one respondent said.
According to an executive in the automotive sector: “Business and
politics have lived in two different realities. The events of the
past year have now aligned realities.”
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.
“Panelists 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
globalized business models can be made to work in a politically
divided world.” For instance, many panelists struggled to imagine
how the US-China economic relationship could be unwound without
overwhelming damage to the world economy. Many companies are
becoming nervous about continuing business there but are unsure
about how to disconnect from such a major market. “Every day is
China strategy day,” one European automotive sector panelist
said.
The survey and interviews, conducted in January and February
2023 by Oxford Analytica, are based on responses received from 50
companies around the world, of which 50% have revenues in excess of
$1 billion. The complete report can be downloaded here.
About WTW
At WTW (NASDAQ: WTW), we provide data-driven, insight-led
solutions in the areas of people, risk and capital. Leveraging the
global view and local expertise of our colleagues serving 140
countries and markets, we help organizations sharpen their
strategy, enhance organizational resilience, motivate their
workforce and maximize performance.
Working shoulder to shoulder with our clients, we uncover
opportunities for sustainable success—and provide perspective that
moves you.
Learn more at wtwco.com.
Media contact
Sarah Booker: +44 7917 722040Sarah.Booker@wtwco.com
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