How real-time exposure monitoring can help insurers deal with political risk

This year, voters will flock to the polls in markets accounting for about 54% of the global population and nearly 60% of global GDP. This will generate regulatory and policy uncertainty in the short and medium term, amid competing visions for international relationships and economic policy that will fundamentally impact the global business environment.

As the value of economies grows with elections – the total value of economies with elections will jump from $9.9tn in 2023 to $40.8tn in 2024, combined with the increase of countries with elections in 2023, presents increased political risk for businesses.

As a result of this global elections supercycle, many election systems will be at risk of foreign interference via cyberattacks, misinformation campaigns, or financial operations. 

Earlier this year, Lloyd’s of London published its 2024 Market Oversight Plan. The plan builds upon Lloyd’s work with managing agents (MAs) in underwriting portfolio management, with a focus on exposure management capabilities for the political violence and terrorism class of exposures.  Managing this volatility within the portfolio from external challenges such as geo-political risk, persistently high inflation and a changing climate will be critical for managing agents (MAs), the report explains. However, Lloyds vowed to assist the market by providing oversight to help insurers respond to these challenges in a risk-based and proportionate way. 

While this may put additional pressure on syndicates to measure, monitor and mitigate against any potential geopolitical shifts, platforms that can provide them with real-time data are well placed to help them meet these requests with greater speed and accuracy. With the growing abundance of data, combined with the latest tracking information and portfolio data, data management platforms like Insurwave can help insurers not just make better underwriting decisions but also improve their reporting capabilities too.

However, with such a wide variety of exposures that will evolve as political situations continue to change, insurers will need to make sure they fully understand their exposures. With this in mind we’ve selected some of the most important countries to keep an eye on this year.

In this period of potential change comes increased uncertainty in the political risk, political violence and trade credit markets. Of the 64+ countries that are participating or have participated in elections, 43% of them that will vote this year do not meet essential democratic criteria according to the Democracy Index from the Economist’s Intelligence Unit. The best-known example is the Russian Federation, which is now an electoral dictatorship. 

On June 2nd, Mexico will likely have its first woman president. The Mexican constitution has barred incumbent President Andrés Manuel López Obrador (AMLO), from seeking reelection despite his 66% approval rating. In his place, AMLO’s governing Morena Party is putting forth Claudia Sheinbaum as its candidate. As the former mayor of Mexico City and a long-time AMLO ally, she has vowed “full responsibility” for continuing AMLO’s policies. But crime and violence, much of it linked to drug cartels, remain a massive problem. Fentanyl smuggling across the border to the United States has raised tensions with Washington. Meanwhile, migration to the US, much of it by people using Mexico as a transit corridor, further strains relations with the US. 

In Europe, the parliament elections will be taking place from June 6th to the 9th, and this will be important to follow as this governing institution has the ultimate say in selecting who will be the new president of the European Commission, the EU’s most powerful advocate, and will most likely have a large impact on future legislation that could impact markets across the world.

Other elections are at risk altogether. In Burkina Faso, recent coups have called into question if the planned general election will go ahead. Parliamentary elections in Chad have already been rescheduled several times before the current date was set for October 2024. Mali's presidential election is also on its second attempt and has again been delayed. This volatility could impact governments ability to pay bills, increasing the risk that businesses can find their public sector contracts suddenly cancelled or go unpaid. As a result, businesses have increasingly been insuring against governments failing to pay their bills by buying “contract frustration” cover.

As these examples illustrate, we are seeing an increasing amount of concentration of economic and insured risk in areas that can be affected by more frequent more severe events. How can you use the data at hand to better inform the insights you can get from your exposures to better prepare for any disruption brought about by the election cycle?

The world of exposures is changing, and the 2024 elections are a great example of this, with many additional considerations needing to be taken into account by insurers. However, responses to any potential loss events resulting from political violence, interference in or worse, will only be as good as the data insurance professionals have access to. While this data was traditionally found hidden away in spreadsheets, insurers can now access an ever-growing volume of data sources.

What would this reality look like? While it may seem daunting, we believe there are a number of exciting opportunities that arise from exposure monitoring fuelled by multiple strong data sources such as monitoring targeted exposures, efficient event response and pattern and trend identification. Let’s take a look at these in some more detail.

By using technology to combine the latest asset tracking information with data from your portfolio, insurers now have the opportunity to improve the speed and effectiveness of their underwriting decisions and how they report on them through access to all of their portfolio data in one place.

For example, looking at aviation assets, if you knew you had aircraft on the ground in Haiti as the nation grapples with an ongoing political crisis, using a technology provider like Insurwave, you could create a custom zone around the airport and ensure you had the latest information on what was happening and what your exposure was at any given moment. 

Historically, a reaction to ongoing events is to pull capacity, however with a reliable source of information that informs you of your exposures location and severity has the potential to unlock new business opportunities by empowering underwriters to write business that they otherwise historically might have run avoided and think differently about the products or services that are offered.

The world is changing and dynamic exposure monitoring will continue to grow in importance and relevance as organisations take into account both moving and static exposures. However, it’s important to remember that this change doesn’t have to be handled alone, with many technology providers like Insurwave available to help you understand the potential aggregate limit and accumulations and how this impacts your portfolio.