Recent tensions in Russia came to a head last week with the arrest of Stephen Kinnock, Director of the British Council’s St Petersburg branch. Allegedly driving over the alcohol limit, Kinnock, the son of former Labour Party leader Neil Kinnock, denies the charges. It is the latest example of the unpredictability of political risk, while the incident adds to the deepening row between Britain and Russia, which started last July when Britain decided to expel four Russian diplomats in connection with the murder of former Soviet Union spy Alexander Litvinenko. In response, Russia ordered the British Council to shut its two regional offices in St Petersburg and Yekaterinburg, but Britain refused to obey.
With this ongoing political tension, is Russia closing itself off from Europe and the western market? John Owen, Unit Head of Credit and Political Risk for Lloyd’s insurer Novae, said: “I do not see how the tensions between Russia and Britain can cause an affect on Russia’s position in the western market, as the export of products does not bear relation to what is going on with certain individuals.
“The fact that gas – which was previously privatised – is now under state control, is safer for us. There is undoubted tension but at the same time business is too big and Russia still needs investment.”
This latest political tension underlines that underwriters have to be prepared for potential flare-ups. According to Miles Johnstone, Director of Aon Crisis Management, Lloyd’s is still seen as the centre for underwriting political and economic risk even though there are regional pockets of excellence.
Johnstone said: “The central focal point for underwriting political risk does remain in London even though there are larger pockets of excellence appearing in regional areas such as Singapore and Hong Kong where underwriters are able to capitalise on their closer insight and regional knowledge.”
“The overall critical mass of political risk expertise of the underwriters at Lloyd’s and the London market has not been diluted. However, the growth in globalisation, particularly over the last ten years, has created a need for insurers to provide more of a global reach.
“Currently we are seeing higher flows of new business coming out of South East Asia, and insurers have been quick to take advantage of this by increasing the numbers of locally based trade credit and political risk specialists, but ultimately the bulk of the underwriting expertise resides in London and will continue to do so in the short to medium term at least.
“The emergence of these regional pockets of political risk underwriting capability means brokers now have more of a choice as to how and where they engage these insurance companies. This benefits clients because, in theory at least, it minimises the historical delays in response times from the London market.”
