Last year saw political risk transform from a low-frequency, high-severity peril into “everyone’s risk,” according to a new report.
WTW’s 2023 Political Risk Survey found that 92 percent of responding companies across industries experienced a political risk loss in 2022, up from only 35 percent in 2020.
The majority of that increase seems to be related to the ongoing conflict between Russia and Ukraine, with 60 percent of respondents reporting a net negative financial impact due to the conflict and 18 percent suffering a material loss. The largest reported losses related to voluntary decisions to exit Russia, but many European companies also suffered severe indirect losses resulting from supply chain disruption, WTW found. One in five respondents reported a direct political risk loss in Russia or Ukraine.
However, the study found a “striking regional disparity” in how companies have been impacted: 86 percent of Western European respondents reported a net negative financial impact from the conflict in Ukraine, while only 33 percent of North American firms said they suffered a net negative financial impact. Surprisingly, half of North American respondents claimed the impact of the conflict has actually been net positive so far.
“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.”
Wilkin said that respondents also have “profound concerns about how globalized business models can be made to work in a politically divided world,” citing the economic relationship between the U.S. and China.
Among the study’s other findings:
- The Ukraine conflict heads the list of top risks for 2023, followed closely by decoupling from China and crisis and new regulations in the EU.
- 100 percent of respondents said they enhanced their political risk management capabilities since February 2022, when the conflict in Ukraine began.
- 68 percent of responding companies now purchase political risk insurance, up from only 25 percent in 2019.
- 86 percent of respondents believe the trend toward deglobalization will strengthen in 2023.
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 percent have revenues in excess of $1 billion. WTW said the survey sample is representative of globalized businesses, across geographic regions, industries, and company size.