Aon's Risk Map: Little Change, More Demand

A comparison between last year's map and this year's map does not reveal dramatic shifts in risk. North America, much of Europe, Australia, Japan, South Korea, Chile and French Guiana remain in the green zone of low risk, while the rest of the world begs caution for business investors for varying economic, political and social reasons.

Michel Leonard, chief economist for the group, noted that one of the major issues for corporations is the rising cost of terrorism, especially for U.S. businesses. Those costs not only speak to the issue of security, but also increased insurance costs related to the risks they are exposed to overseas. There is also concern over how a terrorist incident could affect supply chains as more and more corporations rely on just-in-time supplying for their parts instead of warehousing for production, he said.

"The emerging story is how to deal with these costs," Mr. Leonard noted.

Interestingly enough, he pointed out, brand is also important in the exposure to terrorism. Mr. Leonard commented that a company such as a Coca-Cola, which has a positive image abroad, may not experience the same level of threat as others.

John M. Minor, Aon national director of political risk, noted that the requests for this information, and the insurance coverages it engenders, are growing in demand.

After 9-11, the market for political and economic risk insurance capacity contracted by 40 percent, largely in the Lloyd's market, according to Aon.

Since the Sept. 11, 2001 terrorist attacks, capacity has grown?up about 20 percent from where it was?with existing players such as Lloyd's and Bermuda opening capacity and new players entering the market. Mr. Minor noted that a number of U.S. insurers, notably American International Group and Chubb, are major players in this coverage.

To underscore the growing interest, the group was holding press conferences throughout the world to explain the findings, he said.

Another area where this information is finding use is in the regulatory arena, noted Bryan W. Squibb, managing director of Aon Trade Credit. He noted that under Sarbanes-Oxley, where the chief executive must sign off on the accuracy of the company reports, this information helps to give understanding to the exposures corporations face in overseas development and provide foundations for their decisions.

The executives noted that some interesting trends they see include a search for new outlets where production might be cheaper than in its current location.

In Ghana, for example, the nation is exhibiting more stability and shows some favorable features toward business amid a region surrounded by extremely unstable nations, Mr. Minor said.

He noted Ghana has a highly literate population that speaks English and a growing economy. Some companies may consider relocation of a call center to the area from India at a 20-to-30 percent savings. However, there are perils, and the nation is still rated in the political medium-high risk category, as it was last year.

Corporations are also turning to Eastern European nations as sources to hedge their operations elsewhere as suppliers, which also translates into improved economies in these regions.

Additional information on the map and world risk is available at www.aon.com/us/politicalrisk.