When it comes to political risks, one stereotypically thinks of conflicts in emerging or frontier markets—wars in the Middle East; military coups, regime changes or territorial disputes in Asia and Africa; or election turmoil in Latin America. However, this perception no longer holds true, and the trend is shifting.
Nowadays, wherever one goes, be it Krakow, or Singapore, some of the perpetual conversation topics among business people are inevitably related to the Brexit negotiations; the elections in the Netherlands, France and Germany; President Donald Trump and his immigration and U.S.- centric trade policies; as well as South Korea's presidential impeachment. Interestingly, developed nations, which were traditionally associated with political stability, are becoming new sources of volatility and uncertainty that worry businesses, especially those in the emerging markets.
Globalization is no doubt a contributing factor. It has driven greater connectivity, enabling people, goods and services to move freely improving the quality of life, especially for people in the developing world. However, globalization has also triggered backlash from those who have been left behind, prompting populist leaders in the West to pull back and protect what they believe is in their national interest. Thus, the rising economic and ideological nationalism in the West, coupled with different brands of nationalistic fervor stoked up by political leaders in Russia, China, the Philippines and Turkey, have sparked concerns for potential trade wars, stock and currency market crashes, territorial disputes and military conflicts.
Such sentiments are reflected in Aon's 2017 Global Risk Management Survey, where political risk/uncertainties has emerged as a top concern for global organizations. Ranked at number 15 in 2015, political risk/uncertainties has re-entered the Top 10 risk list. Regionally, organizations in Asia Pacific and Latin America rank the risk much higher than those in North America, probably due to concerns about the inward-looking policy platforms and protectionism that could harm businesses in their regions.
Aon's biennial web-based survey, one of our many efforts to help organizations stay abreast of emerging issues relating to risk management, features analyses and detailed facts and figures gleaned from 1,843 organizations. Participants who represent 33 industry sectors in 64 countries and regions have been asked to identify and rank key risks that their organizations are facing.
We have gathered the largest number of participants since its inception in 2007. This large pool of responses has enabled us to gauge the latest trends in risk management more accurately.
Some of our discoveries are encouraging, but others are worrisome. For example, despite the availability of more data and analytics, and more mitigation solutions, surveyed companies are less prepared for risk. Risk-preparedness is at its lowest level since 2007. With the fast speed of change in a global economy and increasing connectivity, the impacts of certain risks, especially those uninsurable ones, are becoming more unpredictable and difficult to prepare for and mitigate.