The COVID-19 pandemic is set to transform the geopolitical landscape in Asia. This, according to the 2020 Risk Maps report recently published by Aon in partnership with The Risk Advisory Group and Continuum Economics. Extraordinary public health measures and a precipitous drop in global trade will continue to exert significant pressure on economies and governments and will reshape long-standing geopolitical norms.
The socioeconomic implications of the COVID-19 pandemic have been profound. Countries that rely heavily on tourism or retail, or where there is a higher human toll from the pandemic, are facing greater potential for civil unrest and government-focused protests—a risk that was already elevated before the pandemic. Aon’s report finds that three in five developed economies face the potential of strikes, riots and civil unrest in 2020, and it seems the COVID-19 pandemic will only deepen those concerns.
Rapidly evolving risks in Asia
In Hong Kong, political unrest has caused widespread physical damage to property and business. Most big companies typically have comprehensive coverage that includes cover for strikes, riots, and other civil commotion (SRCC). But many of these policies have specific language that excludes loss or damage due to political unrest, which is commonly referred to as the terrorism exclusion clause. With the new Hong Kong security law potentially broadening the activities that could be considered as acts of terrorism, the scope of the terrorism exclusion clause may now extend considerably. The SRCC, therefore, has the potential to become the number one peril faced by businesses in Hong Kong, causing more of a risk than the more standard threats such as fire, flood or typhoon.
Julian Taylor, Head of Crisis Management, Asia, Aon said, “We are seeing businesses turn to the terrorism and political violence insurance market for tailored solutions. These standalone policies can cover not only the property damage elements of the risk but also business interruption, and not only financial loss arising from direct physical loss or damage but also as a result of contingent risks, such as denial of access or loss of attraction.”
Steve Taylor, Head of Credit Solutions, Asia, Aon noted, “Political volatility is increasing, driven by a number of themes, including the socioeconomic and political reactions to the COVID-19 pandemic. We expect political risk insurance to play an increasingly important role for investors, lenders and corporations, underpinning strategy and financing as well as mitigating currency risk, expropriation, political violence and sovereign non-payment risk.”
New areas that HR need to consider in terms of strategic planning and staff welfare include:
Civil unrest, terrorism and political violence
- Economic stagnation and frustration over a range of political, social and environmental trends are the primary drivers of heightened unrest in traditionally stable economies.
- Environmentalism is becoming an increasingly prominent cause of civil unrest.
- Extreme right-wing attacks are increasing and multinational businesses, particularly within the technology, banking and media sectors, are targets.
Political risk
- Governments are increasingly resorting to measures that regulate market transactions. Emerging-market governments have responded to rising populism by erecting barriers to trade and investment.
- Emerging market investors face significant headwinds linked to government expropriation, which is undermining contract certainty and eroding investor confidence.
- Political interference in emerging markets is now taking increasingly indirect forms, such as tax pressure, export restrictions, more stringent regulatory requirements, contract reviews and a general increase in government involvement in specific sectors of the economy.
Economic risk
- The speed of individual emerging market (EM) recoveries following the COVID-19 pandemic will likely depend on a state’s ability to control the health crisis itself, the economic conditions before the COVID-19 pandemic and how much fiscal and monetary policy stimulus is administered.
- Significant monetary and fiscal policies are needed to limit the pandemic’s fallout on EM economies, though they will not fully offset it. Aggressive policy easing will unlikely be enough to avert a fall in global growth by 1.3% in 2020.
- Global trade, labour and capital flows are severely challenged, as economic nationalism has become a widespread response to COVID-19.
Paul Arkwright
Publisher
