Geopolitical instability hits the bottom line as businesses suffer investment losses
Businesses have suffered losses in international projects or investments due to geopolitical and economic risks, with interest in political risk insurance (PRI) soaring as a result.
According to a new report by insurer Howden, over half of the companies surveyed, comprising around 500 senior risk and treasury function decision-makers, reported suffering a political loss to an international investment between 2020 and 2025.
Matt Strong, deputy CEO, head of credit and political risk at Howden, told Morning Wire: “War, geoeconomic fragmentation, policy uncertainty and rapid technological advancement are causing businesses to take stock and re-examine their approach to risk and capital optimisation.”
From the implications of the ongoing Russia-Ukraine war to trade disputes and tariff wars led by US President Donald Trump, businesses have faced a slew of issues over the years.
The Howden report highlighted that multinationals frequently experienced issues related to currency conversion and ownership rights, followed by political violence.
In financial terms, foreign government interference accounted for the largest average loss across all companies at $20m (£14.8m), followed by currency exchange difficulties at $16.2m (£12m) and political violence at $14.6m (£10.8m).
However, Howden highlighted that companies with PRI coverage reported losses $1.4m lower on average than those without coverage.
A PRI policy provides protection for businesses, investors, and financial institutions against losses arising from political events or government actions in a foreign country.
While it is also noted that PRI reduces the cost of capital for an emerging markets project from around 15 per cent to around 11 per cent, representing a saving of around $2m (£1.4m) per year.
The report by the insurance giant stated that it has seen demand for PRI surge by 33 per cent in response to trade disruptions and economic shocks.
However, despite that, it was also made clear that while demand for this coverage has risen, a significant barrier remains, as 73 per cent of companies cite a lack of understanding as the primary obstacle to purchasing cover.
This comes as nearly half of the respondents are not even aware of this insurance product.
Strong explained: “There is still work to be done, however, despite its clear relevance in today’s risk landscape, a lack of understanding of the product remains the top barrier to uptake.”
“It is incumbent on brokers and carriers to improve the understanding, accessibility, and simplicity of cover,” he added.