Businesses always have a lot to worry about, and thesedays one of the items that's getting increasing attention ispolitical risk.

Corporations and their risk managers are facing an unprecedentedset of surprises that reflect a backlash against globalization indeveloped countries, including the U.K.'svote to exit the EU and the U.S.'s election of Donald Trump,who has argued for exiting various trade agreements.

Political risk and uncertainties jumped to the ninthhighest-ranked risk among businesses surveyed for Aon's2017 Global Risk Management Survey, up from 15^thplace in its 2015 survey.

Roger Schwartz, a senior vice president and political riskpractice leader at Aon Risk Solutions, noted that political risksare a constant for companies that do business internationally. Thedifference now is “the possibility of some sort of instability” indeveloped countries, he said.

But in spite of the political rhetoric, “in terms of overallinternational trade and operating in developing countries, therehasn't been a massive sea change one way or another in terms ofbeing able to conduct business,” Schwartz said.

Recent events have cast doubt on a push toward globalizationthat has been in place for decades, a push that has included thelowering of trade barriers and the signing of trade agreements,said Stephen Kay, a senior vice president and U.S. practice leaderfor structured credit and political risk insurance at brokerageMarsh.

“Now there's this alarm that the cheerleader of globalization,which is the U.S., is talking about tearing up trade agreements,closing its borders to immigration, doing things that areantithetical to this globalization drive,” Kay said. “Companies arevery smart to sit up and take notice.”

Within days after his inauguration, President Donald Trumpwithdrew the United States from the Trans-PacificPartnership, a broad 12-nation agreement. After threatening topull out of the North American Free Trade Agreement, the president recentlyannounced that his administration will renegotiate the agreement.And the GOP's tax proposal includes a border tax that would be levied on U.S. importers.

If the U.S. and other developed nations do back away from tradeagreements, companies that do business overseas could faceincreases in tariffs and other costs of trade, and the possibilitythat their investments in overseas countries will not be treatedfairly in those countries, Kay said. If the U.S. closes itsborders, “so will other countries where U.S. plants are operatingnow,” he said.

The risk of confiscation or other forms of governmentintervention “is not necessarily something of the past,” he said.“It's something that could easily reappear now.”

But Kay put the concerns about events in developed nations intocontext by noting that Marsh's 2017 map of global risks still showsthe U.S., Canada, the Scandinavian countries, and Western Europe atthe lowest level of country risk, in contrast with the high levelsof risk perceived for countries in some other regions, such assub-Saharan Africa.

While Brexit has dominated the news, “before and after Brexit,the U.K.'s still going to be a very wealthy, democratic countrywith a democratic rule of law,” he said. “What's changing are therules of the road for some businesses.”

Insurance as an Option

Some of the risks raised by the pushback against globalizationmight be remedied with insurance products, Kay said. For U.S.companies that operate plants overseas, political risk insurance might be helpful, and companies thatearn a large portion of their income overseas might want to look attrade credit insurance, he said. “Trade credit insurance coversboth credit risks of overseas buyers failing to pay and alsopolitical risks of the trade deal [that] didn't get done because ofthe imposition of trade barriers, like cancellation of an importlicense,” he said.

But other risks are less easy to cover with insurance, he said,citing supply chain risk as an example. “Let's say a U.S. companyrelies on an overseas supplier, a third party they don't own, andthat third-party supply might be interrupted because ofgeopolitical risks or events that occur in this newenvironment.”

While there's a product designed for such situations calledtrade disruption insurance, Kay said that Marsh doesn't recommendit, regarding the market as too shallow.

“Our suggestion to companies is that they should try to controlor manage that risk by other means, like finding alternativesuppliers—or making contingency plans if their third-party supplyis interrupted,” he said. “We suggest companies do studies toidentify their risks, the linkages and contingency plans that wouldset in if certain trigger events should happen.”

Similarly, Kay said, the threat of rising tariffs isn'tsomething that can be insured against, and thus “has to bemore hands-on managed by the firm.

“Companies should be evaluating their vulnerabilities to thesetypes of risks, things like embargoes and sanctions and increasedtrade tariffs and trade barriers,” he said.

Aon Risk Solutions' Schwartz also cited a need for companies toevaluate their risks and come up with workarounds for those risksthat can't be insured. “There are ways to mitigate these sorts ofexposures without rushing to an insurer, from working out aseparate supply chain arrangement to installing operations in aparticular country,” he said.

“Risk managers and people on the contracting side and treasuryhave to sit there and do a cost-benefit analysis and riskassessment,” he added. “Insurance companies and brokers likeourselves are here to help them determine what the exposures areand whether or not services we can provide can help them mitigateit—and, even more importantly, help identify it.”

Access to Markets

Stephen Chipman, CEO of Radius, a Boston-based consultingcompany, said that while multinationals need to be aware of thepushback against globalization, to date it hasn't affected theiroperations.

“It's one thing to have political pushback; it's another thingto no longer have access to markets,” he said. “As of today, peoplestill have access to markets. ”

Chipman argued that the anti-globalization sentiment is runningup against the forces that have driven globalization to date andcontinue to do so, such as “technology, communications andtransportation improvements, and the movement of people.” He alsocited the opening of new markets in recent decades including China,India, and Brazil.

“Those are huge economic forces, and those are not reducing,” hesaid. “Certainly from our perspective, in terms of the clients wework with, they at this point are not being significantlyinfluenced by the politics—they're continuing to pursue theirinternational strategies aggressively.”

Chipman noted that his clients are technology and life sciencescompanies. The backlash against globalization might be having moreeffect on the largest global brands, which are “held up by theanti-globalization movement as being the major focus of their ire,”he said.

Those large multinationals are “looking at how do we positionour brand within the community, how do we demonstrate that we aresensitive to these issues that are affecting people in theircommunities,” he said.