What will 2024’s elections mean for business and insurers?

This year will be an historic one, as over two billion voters head to polls in over 50 countries around the globe.

Elections will take place in the US, India, Russia, South Africa, Mexico, states across the EU and – almost certainly – the UK.

The volume and diverse nature of these elections – which take place across economies with a combined value of £35.1tr ($44.6tr) according to figures from Chaucer – will create uncertainty for many organisations.

According to Control Risks, the US election will be the biggest geopolitical event in 2024, with ripple effects felt across the world.

The potential return of Donald Trump to the presidency has sparked concerns that the US could withdraw from international organisations, such as the North Atlantic Treaty Organization (NATO), with ramifications for geopolitics amid ongoing in Ukraine.

Uncertainty over the outlook for domestic policies depending on the victor will weigh upon planning decisions for businesses. This includes the application and progress of the Inflation Reduction Act (IRA), the green energy transition as well as future oil and gas projects.

In the UK, current polling suggests the Labour Party will win any election held this year. According to risk consultancy Control Risks, there are questions about the “coherence and reliability of pledges” being made by the Labour Party that could undermine confidence in the outlook for the UK.

Greatest concerns

A recent poll of Airmic members found that the elections in the UK and US were their greatest concern for 2024.

Hoe-Yeong Loke, head of research at Airmic, said: “While the UK and US elections were always going to be key for our members and their organisations, the stakes this time round are especially high.

”Add potential artificial intelligence-induced election interference to the mix of geopolitical turmoil and macroeconomic uncertainty and what you would get is a vicious circle of volatility around the world.”

Elsewhere, the European Parliament elections will likely showcase an increase in support for populist and far right parties, driven by the cost of living crisis. The vote is likely to cause delays to the passage and conclusion of multiple pieces of legislation.

Seréna Pilkington, an analyst at Control Risks, said: “There is a general trend towards protectionism and nationalism in policymaking, which we anticipate will not be reversed this year.

“Geopolitics, economic issues and protecting national strategic priorities will take precedence. In general, businesses should be carefully monitoring regulatory risk.”

Specifically, ”monitoring regulatory risk specific to your sector, footprint and profile is critical,” she added.

“The political risk fallout will be most substantive in elections which are closely contested and emotive. Clearly, the US stands out as the most contentious and significant in this context and the outcome of this poll could impact a range of political risks in unpredictable ways.”

According to James Crask, head of strategic risk consulting at Marsh UK and Ireland, organisations should be thinking at the global level about the potential impact of these elections. Will they alter the demand dynamics from customers or change the way services need to be delivered, for example?

Crask explained: “On the supply side dynamics are they going to see more regulation? More taxation? And what will the impact be on the organisations financial stability and operations?

“Finally, does it affect our people? Part of that is about the business, labour laws and how that might affect the organisation’s operations and the employee experience. But, also basic things like personal taxation and how that might play out.

“Organisations should also be thinking about less developed countries where they don’t necessarily have the same depth and strength of democratic institutions to support the machinery of government changes and keep things stable. You are more likely to see geopolitical instability in those types of countries.”

Insurance outcomes

The outcomes for the insurance industry of the results of these elections will vary significantly by country. This means that it will be important that exposure is carefully managed, taking into account accurate local intelligence about trends and developments.

The heightened uncertainty generated by elections will also fuel interest in political risk cover, even in environments where political risk has not traditionally been a serious concern.

The three main political risks are strikes, riots and civil commotion, terrorism, war and civil war. However, a number of other risks can drastically impact an organisation’s ability to operate effectively, including sovereign credit risk, expropriation and contract repudiation.

Crask explains: “These might stop the business from operating or they may just slow it down and frustrate it. At that level, you need to understand everything you touch in your supply chain and thinking about how these different political risks might manifest themselves.”

According to Chaucer, demand for “contract frustration” cover is rising as businesses seek to mitigate the risk of their public sector contracts being cancelled or unpaid. Government contract cancellations tend to increase after a change in government and particularly when the country is struggling to pay its bills.

Creditors of a government may also seek to take out political risk cover to protect against a nation defaulting on its debts following an election.

Jonathan Bint, senior underwriter and analyst at Chaucer, noted: “With such a dramatic increase in the number of voters heading towards the ballot boxes this year, businesses around the world will be moving to safeguard against the cancellation of government contracts or financial losses arising from civil unrest or political violence.

“The economic direction of many countries could change radically this year, heightening the need for businesses to protect themselves against political risk. Businesses are increasingly turning to ‘contract frustration’ insurance and other forms of political risk cover to protect their interests.”