The Middle East region paradoxically provides diversity in business and inherent, unavoidable risks
The Middle East is itself the single biggest threat to its growth. Globally, the past 18 months have been characterised by unprecedented political, social and economic unrest spurred by the 2008 global financial meltdown, but none more so than in the Middle East.
Owing to the importance of the region’s oil and gas reserves, long-lasting peace in the Middle East is critical to a stable global economy, but seemingly impossible to achieve.
Unlike recent riots in Europe, which are unlikely to lead to wholesale political upheaval or revolution, relatively minor political unrest in Syria and Libya sparked full-scale armed combat in 2011.
Hiscox chief underwriter for war, terrorism and political violence David Guest says the constant fluctuation is proving a difficult operating environment.
“Over the last 18 months, whenever I have switched on the TV for the 10pm news I have been holding my breath to see what is happening. I know of several insurers that suffered damages in the upheaval of the last year.”
Guest adds that once uncommon terms such as “Arab Spring” are becoming common parlance.
“We have seen in North Africa and certain parts of the Gulf changes in the way the population wants, or expects, to be governed. That has thrown up a lot of challenges for our clients operating there, including in countries that previously have been thought of as highly stable.
“Egypt is a prime example of this. Two years ago, the government had a stronger control of the more militant areas of the population. Politically they were friendly with Israel and the USA. It was a stable operating environment for our clients. But fast forward to today and you have volatile elections, large proportions of the population feeling disenfranchised and no middle-of-the-road political candidate.”
Identifying the threats
Western security forces have made some headway since the September 11, 2001 terrorist attacks by successfully infiltrating extremist groups.
In addition, the nature of Muslim diaspora means much of the communication between extremists groups tends to be through technology such as mobile devices and the internet, making it easier for international forces to detect.
Though the Middle East has long been a region of conflict, the ability to underwrite and insure these risks is a relatively new process.
Ernst & Young’s head of insurance for MENA, Justin Balcombe, says that it is only post-11 September that businesses in the region have been able to truly underwrite their risks for the first time.
“This is a plus for the region because they’re bringing discipline and competency on the back of something that was seen as a bit of a problem child. There is now a mechanism for businesses to address those risks. We have even seen companies benefit from events around the region like the Arab Spring, and have been able to use insurance to remunerate their businesses.”
To view a map of the key political risks in the Middle East, click here