World Risk and Insurance News begins its coverage of the Annual RIMS Conference and Exhibition from New Orleans. Here, John Drzik, President of Marsh Global Risk and Specialties, provides here a macro view of the geopolitical risks affecting international businesses, the common mistakes risk managers make in addressing these risk.

Mr. Drzik references the work Marsh does with the World Economic Forum, which identifies the top international risks facing businesses around to the world. Geopolitical threats are at the tops of the list. Among the biggest threats are the threat of inter-State conflict, the risk of State collapse, and terrorism.

There are numerous exposures related to geopolitical threats, according to Mr. Drzik. He point out that war or acts of terrorism could have a direct impact on a project within a country. He also identifies potential indirect effects of new regulation stemming from “geopolitical friction”, trade sanctions or “forced vestiges” and business interruption, within a company or the company’s supply chain.

Mr. Drzik points out that risk managers could make a mistake in attempting to manage geopolitical risks by trying too hard to specifically identify the countries where geopolitical threats exist and buying political risk insurance on a narrow set of countries, or coverages. He also warns against looking too short term. Political events tend to broad in nature and play out over a long period of time. He suggests broader coverage and term risk transfer.

There are many approaches to managing, mitigating, or transferring geopolitical risks. Mr. Drzik mentions management of risk within an international project, a review of local joint venture partners or working with the IFC (International Finance Corporation) to help mitigate risk. He also says that traditional risk management tools approach, such political risk insurance, portfolio diversification should be used to manage the risk.

Finally, Mr. Drzik advises risk managers to consider dynamic environment that exists today. Geopolitical risks are dynamic as a result. Take a broader view over a longer horizon, and consider all the risk mitigations available.

For more coverage from the 2015 RIMS Conference in New Orleans, visit the dedicated RIMS 2015 Channel in the On Demand Library.

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