Geopolitical risk rise as economic volatility hits APAC

Financial market crashes, interstate conflict and cyber-crime now threaten almost half (46%) of APAC cities’ economic output (GDP@Risk), according to the Lloyd’s.

While natural catastrophes remain Asia Pacific’s (APAC) largest source of risk, man-made threats such as those listed above are seriously threatening businesses across the region, according to the latest edition of Lloyd’s City Risk Index (CRI), and measures GDP@Risk from 22 separate threats in 279 cities across the world.

The new research shows that the cities in the APAC region have the highest GDP@Risk, accounting for US$241.3bn or 44% of the global GDP@Risk. There are five APAC cities in the global top 10 cities, namely Tokyo (ranked #1), Manila (#3), Taipei (#4), Osaka (#6) and Shanghai (#8).

Globally, a financial market crash is ranked as the largest risk and could reduce economic output in the world’s biggest cities by US$103.3bn – with almost a third of this (US$34bn) from APAC, according to the study.

Meanwhile, reflecting the rising level of geopolitical instability around the world and tensions in the Korean peninsula and South China Sea, the study reveals that globally, interstate conflict weighs in at US$80bn, making it the second costliest peril, with US$32.4bn (40%) coming from APAC cities.

Stuart Ashworth, Willis Tower’s Watson’s head of financial solutions, says: “Geopolitical uncertainty, economic volatility and protectionist measures have been trending up over the last few years and multinational corporations are rightly concerned about the landscape they now find themselves in.

“The challenges many countries face are similar: how do you raise the standard of living for your citizens, how do you stimulate economic growth, and how do you remain relevant in an ever changing world? And yet countries are taking markedly different approaches to how to achieve these goals.

“We have seen a wave of populist movements wrestle power from established political leaders and, as this new cadre of leaders start to deliver on their election promises, we can see rising tensions and the possibility of conflict appears.

“The US, who have for many years championed stability, are now increasingly unpredictable and this has led to worsening relations with Russia, China, and Iran. This has, in turn, led to increased tension in the South China Sea, Eastern Europe and the Middle East.”

Ashworth also says that in a climate where nations jostle to secure and defend precious resources, be they mineral resources or intellectual property, miscalculations or brinkmanship can easily lead to conflict.

In late 2017 Willis Towers Watson and Oxford Analytica surveyed many leading corporations, and found that 89% of those interviewed felt that political risks had increased over a 5 year horizon, and 63% of those interviewed had already experienced some form of financial loss because of Political risk.

“There is no obvious sign of this abating and risk managers should carefully consider what exposure they have to direct or indirect political events (be that trade wars, regional conflict or economic downturn). Once they are able to analyse and measure these risks, they can then proactively begin to manage and mitigate them through a well-considered and properly structured Insurance programme.”