Global Election Super-Cycle Raises Risk of Political Violence, Large Insurance Losses

Almost half the world’s population will go to the polls before the end of 2024, which raises the threat of political violence and possible large insurance losses, according to Allianz Commercial in a recent report.

An unprecedented “super-cycle” of elections around the world this year “create the potential for conflict and unrest, with rising extremism and misinformation compounding the threat,” said the report titled, “Managing the increasing threat of political violence and civil unrest.”

While large-scale terrorist attacks were the biggest losses in the political violence and terrorism insurance space in recent years, they have been overtaken in certain regions by major losses from strikes, riots, and civil commotion (SRCC) events, according to the report.

“As unrest can now spread more quickly and widely – thanks in part to the power of social media – financial costs are mounting,” the report said.

It noted that economic and insured losses from such activity can be considerable, resulting in significant losses for companies and their insurers. “For example, economic and insured losses from just seven civil unrest incidents in recent years cost approximately $13 billion.” (See sidebar.)

The report cited the Allianz Risk Barometer, published in January 2024, which showed that businesses are more concerned about political risks and violence than they have been for many years. Political risk and violence has risen to eighth position in the list of concerns for businesses across the globe, its “highest ranking since 2017,” when the business world was uncertain about the ramifications of the UK’s Brexit vote and the election of Donald Trump in the United States.

Anti-government protests erupted in 83 countries during 2023 (including in seven countries that had not experienced major protests in the past five years), which were “driven by factors such as high inflation, wealth inequality, food and fuel prices, climate anxieties, and concerns about civil liberties or perceived assaults on democracy,” the report said.

Increasing Demand for Political Violence Insurance

As a result of these looming threats, multinational companies are showing increasing demand for political violence insurance, the report said.

“The sustained political violence and strikes, riots and civil commotion (SRCC) activity in evidence around the world is a challenge not only for businesses but also for the broader insurance market because the coverage goes well beyond the political violence and terrorism class of business,” according to Srdjan Todorovic, head of Political Violence and Hostile Environment Solutions, who was quoted in the report.

He noted that almost all property classes of insurance offer SRCC coverage.

“Interest for political violence coverage continues to increase while reinsurance capacity and general appetite is reducing. Insurers continue to search for solutions to limit and better monitor their exposures as they note the deteriorating global situation,” Todorovic added.

“Businesses with multi-country exposures are showing a greater interest in political violence coverage than clients with smaller and simpler production and supply chains,” he said.

The report noted that political violence activity can affect businesses in many ways. “Those in the immediate vicinity of unrest can suffer business interruption losses and material damage to property or assets, while indirect damage can be inflicted on companies in the form of ‘loss of attraction’ or ‘denial of access’ to their premises,” the report said.

Business Continuity Plan

Businesses should protect their people and property by ensuring a robust business continuity plan is in place in the event of an incident, increasing security and reducing or relocating inventory if they are highly likely to be affected by an event, Todorovic recommended.

“Using scenario planning and tracking risks in areas key to their operations, particularly transport and manufacturing centers, can raise businesses’ awareness of where the risk of political violence or unrest might be intensifying,” the report said.

The report recommended that businesses should review their insurance policies. “Property policies may cover political violence claims in some cases, but insurers also offer specialist coverage via the political violence market,” it stated.

Super-Cycle of Elections

To put the risk of the super election cycle into context, Allianz Commercial pointed to the U.S.’s “headline election” in November, “when a narrow result could inflame existing tensions, particularly in the battleground states that could dictate the election’s outcome.”

“Any unrest around the November election is likely to be focused on the battleground states as well as the capital Washington DC,” said Todorovic.

The U.S. election should be viewed as a series of events, rather than a single event, the report said, quoting risk management consultants Crisis24, a partner of Allianz Commercial.

Other elections this year include EU elections in June, elections in India in April/May, in South Africa in May, and in Mexico in June.

The European Parliament elections in June “could see radical right parties gaining votes and seats. This shift builds on electoral trends seen in Europe in 2023 and risks intensifying cultural and ideological divisions,” the report added.

“The rise of far right and populist politics in Europe is a cause for concern because polarization and unrest within societies are fueled by fear. They undermine trust in institutions and challenge people’s sense of a common purpose built on shared values,” Todorovic said.

“So many elections in one year raise concerns about the fueling of populism and polarization, with tensions playing out in heightened civil unrest. In addition, we expect to see increased activity around environmental issues, not only from activists, but also from those who are pushing back against government climate mitigation policies,” Todorovic added.