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4 potential political risks arising from COVID-19

Credit, Political Risk and Terrorism

By Laura Burns | May 5, 2020

From Wuhan to Washington, the COVID-19 pandemic has impacted medical systems, closed national borders and many citizens have been mandated to stay home.

Financial markets have fallen, with the Dow Jones Industrial Average dropping nearly 3000 points on March 12, 2020, in its worst day since 1987.1 The business costs of the COVID-19 outbreak are increasing and some companies may lack the cash reserves to cope.2 Global supply chains were initially hit hard by the closure of Chinese factories and the disruption has continued to spread. COVID-19 has also undermined demand for many commodities, such as energy, contributing to a collapse in world oil prices.3 These stresses may have the potential to produce geopolitical risks.4

As risk managers look to protect their companies through these immediate challenges, they must also prepare for the next wave. In this piece we look ahead to some of the political risks that could emerge, the potential impacts to a multinational company, and discuss the insurance tools that companies can use to help address these challenges:

  1. 01

    Political instability

    The pandemic and response is already putting pressure on governments, economies and households. If populations suffer shortages of food, jobs, or medical supplies, one outcome, if governments are perceived as unable to respond to social concerns, we may see this become a source of political discontent or civil unrest in some areas. In some cases, political leaders have themselves been infected with the virus – a potentially dangerous situation in countries facing security challenges or where the rule of law is weak.5 Some early examples include Brazilian protests due to President Bolsonaro’s response (both for and against interestingly) and pan-African demonstrations, which have begun to flare over food prices and availability6, 7.

    Long term civil unrest is also possible should economically vulnerable nations, currently with manageable outbreaks, become overwhelmed . In the extreme, these could further manifest in regime change and period of social disorder in a given country or region.

  2. 02

    Nationalist policies

    It is being reported that COVID-19 could amplify the current wave of populist backlash to globalization which could also impact multinational corporations globalization.8

    It is being reported that COVID-19 could amplify the current wave of populist backlash to globalization

    Nationalist governments tend to look towards export and import controls, interference in foreign ownership of local companies, confiscation of assets, or creeping expropriation such as a series of acts that amount to a de facto taking. If the level of national interest in certain industries, such as medical, food supplies and technology or industrial products, grows, we may see increased intervention by some governments.

  3. 03

    Sovereign non-payment

    In both a pandemic scenario and supressed economic activity, weaker economies may not be able to absorb the economic shock, and governments may default on payments. Even in stronger economies, there will be pressure on governments to divert national budgets to fight the virus and provide economic stimulus or rescue packages and therefore payment priorities could change (including cuts to their own social programs – refer back to political unrest). Adding to the strain, it comes at a time where many sovereigns are awash in debt: $72.7tn (92.5 per cent of global gross domestic product) for sovereign borrowers and $69.3tn (88.3 per cent of GDP) for non-financial corporate borrowers, according to the Institute of International Finance.9 The IMF and other lenders may be accommodative, but we don’t yet know exactly how that will play out. As of early April 2020, Argentina, Ecuador and Zambia, among other countries, had provided formal notification of their need to restructure their debts.10

  4. 04

    Currency controls

    Countries in financial crisis or running low on foreign reserves may impose currency controls as a tool to manage the economy. Multinational corporations with deposit accounts overseas that need to repatriate intercompany trade payables, loan repayments, dividends or royalties, may find their cash trapped; unable to be converted or repatriated. Recent examples include Argentina and Egypt11, 12 and some analysts are concerned about Nigeria, Pakistan, and several others in the offing.13, 14

Anticipating the next wave:

Insurance tools

In such a fluid and unprecedented situation, it is too early to make projections on exactly how the insurance market will respond but for now (April 21) most insurers have confirmed their commitment and appetite to write political risk insurance, giving risk managers a tool to respond to post-COVID-19 shocks. Below are perils within such political risk insurance. The impact to companies can impose a need to restate earnings, involve the C-suite and board of directors in media or analyst inquires, and in some cases, threaten their financial viability.

Political instability and forced abandonment

For the first risk identified, political instability, multinationals’ physical assets could be damaged in the midst of civil strife such as politically induced protests. Political risk insurance assists by providing replacement cost cover for the physical assets damaged as well as ensuing business interruption expense. In a scenario where no physical damage occurs, but a dangerous security situation is present, investors can also look to protect the value of the assets or operations that were forced to be abandoned.

Government Acts

Governments acts that are discriminatory to foreign investors such as export or import bans, sanctions, confiscation, or government takeover, a multinationals’ equity value in subsidiaries or joint ventures can be lost in whole or in part. Insurance can offer a solution to underwrite this loss of equity and in some cases, business interruption following it.

Contract frustration

For multinational corporations entering into foreign trade transactions, contract fulfilment could be obstructed due to the aforementioned political risks. Non-payment by a sovereign counterparty or slow payment lasting six months or longer could result. If it is with a commercial counterparty, other perils identified here such as political violence, government interference or currency inconvertibility could impede the contract completion. Insurance can again help provide an answer. Companies can look to cover unpaid invoices as well as pre-shipment costs incurred (such as component parts).

Currency inconvertibility/non-transfer

When investors are blocked from transferring money out or converting money into hard currency such as U.S. dollars due to currency controls, inconvertibility/non-transfer cover can address this risk.


In perspective, when the COVID-19 waves of disruptions subside, the next business cycle will begin, offering great opportunity for expansion to the firms savvy and nimble enough to navigate this current environment. It is advisable to consider and explore policies like these while the underwriting markets remain open and willing.










9 Search for: ‘Coronavirus and debt: a toxic mix’







Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.


Senior Vice President, US Political Risk Product Leader
Political and Credit Risk

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