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Aon: political instability on the rise as credit crunch hits home

The global credit crunch is expected to impact worldwide political stability in the year ahead, posing challenges for Australian firms operating abroad, says Aon Risk Services.

Aon has evaluated 209 countries and territories in its 16th annual Political Risk Map to determine exposure to risks such as currency inconvertibility and transfer, strikes, riots and civil commotion, war, terrorism, political interference and legal and regulatory risk.

Aon says a number of high-risk countries have continued to deteriorate in the past year forcing the risk management services provider to add a new top-level Very High Risk category to the project.

Countries in this category include Afghanistan, Iraq, North Korea, Somalia and Zimbabwe.

In a reflection of a general rise in global risk, 18 countries had risk ratings downgraded during the past year.

Ian Davidson, National Manager Crisis Management for Aon Australia, says insurers are still willing to write business, despite increased volatility.

“Insurers in Australia are very keen to write more political risk business in 2009 and increase available capacity to significant amounts,” he told insuranceNEWS.com.au. “But I think they will stay away from greenfield developments in favour of an expansion of existing projects.”

Clients operating in high-risk countries clients can expect higher rates in political risk insurance, terrorism and kidnap and ransom insurance lines, he said.

“Certainly I think in very high risk countries insurers will be selective about how much cover they write and the price will go up,” he said.