WTW: Political risk emerges as a top concern for global firms

By Mia MacGregor

May 13 - (The Insurer) - Political risk is emerging as a significant worry for global firms, with a recent report from WTW indicating that 74% of companies cite it as one of their top five concerns.

This risk has climbed up the enterprise risk management (ERM) risk register not only for companies in high-risk sectors but for most globalised firms, said the report.

Notably, 11% of respondents identified political risk as their number one concern, particularly in sectors such as government contracting, transport and mining.

The survey also highlighted that 58% of firms expect trade wars to negatively impact their finances in 2025.

Sam Wilkin, director of political risk analytics at WTW, discussed with The Insurer how the growing concern over political risk might affect mergers and acquisitions.

He noted that diversification has traditionally been the most effective strategy for mitigating political risk, alongside bilateral investment treaties, political risk insurance, trade credit insurance and crisis management.

However, Wilkin pointed out that there is growing uncertainty about the future effectiveness of diversification due to the world increasingly dividing into geopolitical blocs.

He explained, "During the interviews people were saying, 'Well, we're not sure how effective diversification is going to be in the future because the world is increasingly bifurcating into blocs.'"

He referenced strategies such as the "China plus one" approach, where companies invest or source from China and another country.

Wilkin said "This strategy really falls apart if a lot of those countries that you're doing a plus one in end up in the bloc that's opposed to the US, facing high tariff walls or geopolitical misalignment."

Companies have relied on diversification for various aspects of political risk management since the onset of globalisation. However, its effectiveness may be waning, prompting firms to explore alternative strategies, according to Wilkin.

"It'll be really interesting to see what other strategies companies start to lean on harder. Like, is that gonna be an insurance strategy? Is it gonna be pulling back from globalisation? Is it gonna be resilient strategies?"

Wilkin noted that "insurance products like political risk insurance, trade disruption insurance, and trade credit insurance are areas where we might see more innovation, and we're certainly seeing more interest as companies figure out how to deal with this."

He also suggested that the role of risk managers might expand, noting: “Historically, the risk manager hasn't had a central role in dealing with geopolitical risk. But that may begin to change.

"I think it ought to change, and that may change more in the future, as these traditional strategies that relied on the strategy planning department or the sourcing department start to work less. Maybe we see the risk manager taking a more central role in dealing with political risk and geopolitical risk."