Geopolitical risk in 2026: what insurers need to know
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What geopolitical risks can we expect in 2026?
2026 follows another year in which geopolitical events have continued to drive economic uncertainty rather than sitting in the background.
Conflict, trade policy, cyber activity and political decision-making have increasingly overlapped, with knock-on effects for inflation, supply chains, investment markets and insurance claims.
Several themes from the past 12 months are likely to remain relevant:
- Ongoing conflicts continue to shape economic outcomes, particularly the war in Ukraine and the conflict in the Middle East, influencing energy markets, sanctions and regional stability.
- Global trade routes have proven vulnerable, with disruption to shipping in and around the Red Sea leading to longer routes, delays and higher transport and insurance costs.
- Relations between major powers remain strained, especially between the US and China. Tensions around Taiwan remain a key risk, where even a limited incident could have significant consequences for global trade and technology supply chains.
- Cyber activity is increasingly linked to geopolitics, with attacks on businesses and infrastructure often attributed to state-backed actors and driven by wider political tensions.
- Domestic political pressures including elections, migration and social polarisation continue to drive sudden policy changes that can affect markets and regulation.
In addition, a wide range of geopolitical developments could materially affect insurers, including:
- Trade restrictions, tariffs and export controls affecting key industries
- Disruption to energy and critical infrastructure
- Sanctions that change quickly and affect counterparties and investments
Even insurers without explicit political risk exposure are likely to feel the impact through:
- Supply chain disruption and business interruption, including contingent exposures
- Inflation volatility, affecting claims costs, reserving and pricing
- Market and credit impacts, driven by rapid changes in policy, sanctions or investor confidence
Developing and maintaining a focused set of geopolitical scenarios remains essential, not to predict specific events, but to understand how plausible developments could transmit through economies and insurance balance sheets.
Cat Drummond Partner
How do geopolitical events transmit into economic risk?
Geopolitical developments increasingly affect economies through a combination of trade, financial and policy-related channels.
Over the past year, these effects have often been interconnected and persistent rather than short-lived.
Key transmission mechanisms include:
- Trade and supply chains: Trade restrictions, sanctions and disruption to major shipping routes have increased costs, extended delivery times and reduced supply chain resilience.
- Energy and commodity markets: Political tensions and conflict have contributed to volatility in energy and commodity prices, with implications for inflation and investment decisions.
- Technology and industrial policy: Export controls, investment restrictions and competition over strategically important technologies have increased fragmentation in key sectors.
- Financial markets: Geopolitical developments have contributed to market volatility, shifts in capital flows and changes in investor risk appetite.
- Labour and migration: Policy responses to migration and demographic pressures have affected labour availability in some sectors, influencing productivity and economic growth.
These channels can interact. For example, supply chain disruption may contribute to inflationary pressure, which in turn affects monetary policy, asset values and financing conditions. For insurers, these economic effects may influence claims costs, business interruption exposures, asset values, credit risk and capital adequacy. Understanding how geopolitical developments transmit through these channels provides a foundation for developing and maintaining credible stress and scenario tests.
Neil Gedalla Principal
Which global corridors are most at risk?
Global trade, travel, energy and communications rely on a relatively small number of highly concentrated corridors and physical assets.
Disruption at these points (whether through conflict, political action or cyber activity) can have rapid and widespread economic effects.
Key areas of concentration include:
- Maritime shipping routes: Major sea lanes and chokepoints such as the Suez Canal, Panama Canal and key straits carry a significant share of global trade. Disruption can lead to rerouting, delays and higher transport and insurance costs.
- Airspace and flight corridors: Restrictions on airspace, driven by conflict or political decisions, can force longer routes, increase operating costs and affect both passenger and cargo capacity.
- Energy infrastructure: Pipelines, LNG terminals and electricity interconnectors are often geographically concentrated and politically sensitive, making them vulnerable to disruption or deliberate interference.
- Transport hubs and physical infrastructure: Ports, bridges, tunnels and rail hubs act as critical nodes within supply chains, where disruption can have outsized economic effects.
- Digital and communications infrastructure: Subsea cables, data centres and satellite networks underpin global communications and financial systems. Damage or interference can disrupt trade, payments and business operations beyond the immediate location.
These concentrations mean that geopolitical events do not need to be large-scale or prolonged to have significant economic consequences.
Localised disruption at critical nodes can transmit quickly through global systems.
For insurers, this highlights the importance of understanding exposure to corridor-driven disruption, including potential impacts on business interruption, contingent exposures, marine and aviation risks, energy markets and investment portfolios.
The map below highlights geographical regions that warrant monitoring due to their strategic importance and their role within concentrated global corridors.
Disruption in these areas can transmit quickly into broader economic and financial impacts.
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Key locations
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- Context: Elevated political polarisation and periods of internal instability can influence policy direction, labour markets and investor confidence.
- Primary concentration area: Financial markets; labour markets; major transport and digital hubs
- Potential economic impact: Policy volatility, regional economic disruption, market confidence effects, investment uncertainty.
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- Context: Ongoing conflict and sanctions affect security, energy supply and trade relationships.
- Primary concentration area: Energy infrastructure; transport hubs; digital networks
- Potential economic impact: Energy price volatility, sanctions impacts, market and credit risk, infrastructure disruption.
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- Context: Regional tensions affect energy production, shipping routes and political stability.
- Primary concentration area: Energy infrastructure; maritime shipping routes (Strait of Hormuz)
- Potential economic impact: Oil and gas price volatility, shipping disruption, inflationary pressure, market uncertainty.
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- Context: A highly concentrated maritime corridor linking the Indian Ocean to the Mediterranean, bordered by politically unstable regions and hosting a several foreign naval bases.
- Primary concentration area: Maritime shipping routes; energy transport corridors
- Potential economic impact: Disruption to global trade flows, rerouting of shipping, increased transport and insurance costs, business interruption and marine exposures.
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- Context: Central to global manufacturing and technology supply chains.
- Primary concentration area: Maritime shipping routes; airspace and flight corridors; digital infrastructure
- Potential economic impact: Disruption to technology supply chains, trade impacts, financial market volatility.
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- Context: Trade, export controls and industrial policy influence global value chains.
- Primary concentration area: Manufacturing hubs; digital infrastructure; transport corridors
- Potential economic impact: Supply chain fragmentation, investment shifts, inflation and productivity impacts.
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- Context: Political and economic instability in a major oil-producing country.
- Primary concentration area: Energy infrastructure; maritime shipping routes
- Potential economic impact: Energy market effects, sanctions exposure, regional market volatility.
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- Context: Strategic importance for defence, energy and alliance relationships; increasing geopolitical attention.
- Primary concentration area: Energy infrastructure; digital communications; strategic transport routes
- Potential economic impact: Alliance and policy uncertainty, longer-term impacts on trade, defence spending and investment confidence.
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- Context: Concentration of assets essential to trade, energy and communications.
- Primary concentration area: Pipelines; ports; bridges; subsea cables; satellite networks
- Potential economic impact: Localised disruption with wide-ranging effects on trade, energy supply and financial systems.
How geopolitical developments can affect insurers
Geopolitical developments can affect insurers through multiple channels, often indirectly and with time lags. The scale and nature of the impact will depend on the specific event, the policy response, and the lines of business and geographies exposed.
Key areas of potential impact include:
- Claims inflation and replacement costs: Disruption to supply chains, trade routes and energy markets can increase the cost of materials, labour and repairs, particularly for property and specialty lines.
- Business interruption and contingent exposures: Disruption at critical corridors or infrastructure nodes can lead to operational interruption, even where insured assets are geographically distant from the original event.
- Trade credit and political risk: Sanctions, trade restrictions and counterparty stress can affect payment behaviour, default risk and claims experience for firms engaged in international trade.
- Market and investment risk: Geopolitical shocks can drive volatility in equity markets, credit spreads, interest rates and currencies, with implications for asset values and capital adequacy.
- Policy wording and coverage interpretation: Evolving risks, including cyber activity and state involvement, can create uncertainty around coverage triggers, exclusions and aggregation.
What should actuarial teams consider?
Geopolitical risk presents challenges across pricing, reserving and capital modelling, particularly where historical data provides limited guidance on future outcomes.
Key considerations include:
- Pricing and underwriting: Increased uncertainty around claims inflation, supply chain disruption and economic conditions may require greater use of judgement and scenario-based adjustments, while maintaining competitiveness.
- Reserving: Changes in claims severity, settlement patterns and policy wordings may affect reserve adequacy. Reserving assumptions should consider whether recent experience remains representative under different geopolitical conditions.
- Capital modelling and stress testing: Geopolitical risk can contribute to higher volatility across underwriting, reserving and investment risks. Scenario testing provides a structured way to assess sensitivity to plausible but severe developments, including corridor-driven disruption and market stress.
- Correlation and aggregation: Geopolitical events can affect multiple risk types simultaneously, increasing dependencies between underwriting, reserving and market risks that may not be fully captured in standard model calibrations.
- Business volumes and mix: Economic uncertainty and changing risk perceptions may influence demand for insurance and the composition of portfolios, with implications for volatility assumptions and capital requirements.
Maintaining an effective geopolitical risk framework requires ongoing monitoring, regular refresh of scenarios, and clear articulation of how judgement has been applied within actuarial processes.
