Seeing political risk differently
A call to action from Dan Riordan for Berne Union members to engage and find new ways to look at political risk.
Political risk and economic uncertainty ebb and flow throughout the world, and the current risk environment is experiencing significant inflows. From market volatility, to war in Ukraine, to conflicts in many other locations, to rising inflation, pressures on governments, financial institutions, investors and communities are continuing to rise. The need for political risk and credit insurance solutions is intensifying. At a time when risk complexity is increasing, there are more opportunities than ever for the public and private sectors to collaborate, share expertise and develop solutions.
The Berne Union’s members are well acquainted with these challenges. BU members also are seeing risk appetite tightening as claims emerge due to an evolving risk landscape. We believe now is not the time to retreat, but rather to engage and find new and innovative ways to address political and credit risks – to help organisations achieve their goals, and to support sustainable development. In other words, now is the time for insurers to see the heightened risk differently.
The marketplace of private political risk and credit insurance is diverse, comprising companies with long experience writing these risks as well as new organisations offering fresh capital matched with highly experienced teams and backed by leading, global reinsurers. This specialised sector of insurance has many skilled professionals with extensive knowledge of political and credit risks.
Challenging as the geopolitical environment is, we believe private-sector insurers can provide solutions if they view the current marketplace as a time of possibility. For example, now is a good time for insurers to adopt a broad appetite in challenging markets, and to partner with export credit agencies, multilateral development banks, development financial institutions, international lenders, and corporates to finance medium- to long-term risks. We believe the insurance industry has the talent and tools to find ways to say ‘yes’ and provide cover.
Markets in need of the industry’s capital and expertise are everywhere. As a result, numerous opportunities exist to deploy capacity for projects that support environmental, social, and governance (ESG) initiatives. For example, there are significant societal and economic benefits in supporting a broad range of infrastructure and community development projects, including:
- Construction of rural hospitals in sub-Saharan Africa
- Water treatment plants
- Roads, bridges, and highways in Latin America
- Telecommunications and connectivity in rural communities
- Investments accelerating the transition to renewable energy in Asia
These are only a few examples of the kinds of projects where insurers can make a difference when they prioritise finding solutions with strong and committed partners. It is highly gratifying to identify and implement risk financing opportunities with agencies and others that make sustained investments possible in markets where conditions at first glance appear too risky to participate.
For instance, the construction of hospitals in rural Angola can contribute immensely to reducing poverty and improving health and wellbeing in a nation that struggled during decades of civil war. About 68% of Angola’s population of 35 million resides in urban areas, where healthcare facilities are concentrated. More than 30% of Angolans live in poverty, and the country’s average life expectancy is 62 years, one of the lowest in the world. Infant and maternal mortality are among the world’s highest.[1] Improving healthcare infrastructure there would be transformative, accelerate recovery from a tragic history, and make Angola a stronger trading partner internationally. This is an example of collaboration that can occur not only in Africa but also in other regions.
As risks become more complex, the value of sharing information and expertise rises – these challenges are best met when organisations work together. We believe private political risk and credit insurance companies can and should do more with partners in the public sector. Collaboration to leverage risk management resources and knowledge is an effective way to mitigate political risk and credit challenges that can disrupt development and economic growth that can transform communities and nations. The private sector can also bring in additional capacity to support agency mandates as well as to manage ‘tall-tree’ exposures in particular geographies.
The Berne Union plays a critical role in facilitating cross-border trade and investment, which benefits developed as well as developing markets. Vantage and our peers enthusiastically support the Berne Union’s mission, and we are eager to partner with BU members to address these growing risks to drive innovation and development. The need for political risk and credit insurance is clearly present in many countries – the world needs more capacity, not less, for those willing to make investments that can save lives and transform economies.
Dan Riordan, Global Head of Political Risk & Credit at Vantage, has extensive career experience in helping organisations around the world manage political risk and credit exposures. Before joining Vantage, he held executive leadership positions at global insurance organisations. He served as president of the Berne Union from 2013 to 2015. At Vantage, his team serves the growing needs of financial institutions, government agencies and infrastructure developers.
- https://www.cia.gov/the-world-factbook/countries/angola/ ↑
