Bank CEOs have good reason to be worried about rising civil unrest, as economic conditions deteriorate fast around the world. If 2019 was the year of protest, 2022 could be the year of unbottled rage.
“Businesses should prepare for a rise in civil unrest incidents as the cost-of-living crisis follows hard on the heels of the COVID pandemic.” That is the message of an article published on the corporate website of Allianz, the world’s largest insurance company with over €1.1 trillion in assets. It reflects the growing concerns among executives in the FIRE (finance, insurance and real estate) sector about the risk of societal breakdown. According to Srdjan Todorovic, the Head of Crisis Management at Allianz Global Corporate and Specialty’s London unit, civil unrest is now a bigger threat to global businesses than terrorism:
Civil unrest increasingly represents a more critical exposure for companies than terrorism. The nature of the threat is evolving, as some democracies become unstable, and certain autocracies crack down heavily on dissenters. Unrest can occur simultaneously in multiple locations as social media now facilitates the rapid mobilization of protestors. This means large retail chains, for example, could suffer multiple losses in one event.
Where we currently stand, I don’t expect incidences of social unrest to abate any time soon, given the after-shocks of Covid-19, the looming cost-of-living crisis, and the ideological rifts that continue to divide societies around the world. We’re seeing rising interest from risk managers in specialist cover for political violence, as some traditional property and casualty insurers have stepped back from the exposures associated with SRCC insurance. The standalone market is also having a rethink on war-like perils, as well as the coverage extensions that were offered freely only a few months ago.’
Recent protest movements have already exacted a heavy toll on both economies and companies, the article notes. In 2018, French retailers lost $1.1 billion in revenue in just a few weeks of the Yellow Vest movement’s Saturday protests against rising fuel prices and economic inequality. A year later in Chile, an increase in subway fares in the country’s capital sparked large-scale demonstrations, leading to insured losses of $3 billion. South African riots of July 2021 caused $1.7 billion of damage. One recent protest the article doesn’t mention is the Canadian Freedom Convoy’s blockade of the US-Canada border in February this year, which is estimated to have caused over $1 billion in losses daily.
“A Crisis On Top of A Crisis”
Todorovic is not the only person worried about the looming threat of widespread civil unrest. Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), recently said: “We are facing a crisis on top of a crisis,” referring to the combined impacts of the Covid pandemic and the war in Ukraine. Georgieva described rising inflation as a “clear and present danger” to many countries and cautioned that if action is not taken to shore up food security, “the alternative is dire: more hunger, more poverty, and more social unrest – especially for countries that have struggled to escape fragility and conflict for many years.”
In May this year, Nafeez Ahmed, the special investigations reporter of the British newspaper Byline Times, published an article warning that global banks are privately preparing for “dangerous levels” of imminent civil unrest in Western homelands. Citing the head of a “financial institutions group” that provides expertise and advisory services to other banks, insurance companies, and other financial institutions, Ahmed reported that contingency planners at top financial institutions believe that “dangerous levels” of social breakdown in the West are now all but inevitable, and imminent:
An outbreak of civil unrest is expected to occur anytime this year, but most likely in the coming months as the impact of the cost of living crisis begins to saturate the lives of “everyone”.
The executive [who spoke to Byline News on condition of anonymity as the information he disclosed is considered highly sensitive] works at a leading Wall Street firm which is considered a systemically important financial institution by the US Financial Stability Board. These are institutions whose functioning is considered critical to the US economy, and whose failure could trigger a financial crisis.
According to the executive, major banks all over the world including in the US, UK and Western Europe are instructing their top managers to begin actively planning how they will respond to the impact of financial disruption triggered by a prolonged episode of civil unrest. However, the banking official did not elaborate on what these planning measures involved beyond reference to stress testing to determine the impact on investment portfolios.
While increased civil unrest in developing countries has been openly discussed by major institutions such as the UN, World Bank, IMF and other institutions, this is the first time in recent years that expectations of a coming epidemic of social breakdown in Western societies has been attributed to top banking and investment firms.
Even before the COVID-19 pandemic upended an already fragile global economy, inequality and social divisions were already rising fast around the world. The Global Financial Crisis of 2008 and the unwillingness of governments or central banks to tackle the underlying causes of the crisis — including huge levels of private debt (much of which was shifted onto public ledgers), unfettered speculation in the financial markets and the creation of ever more destructive financial instruments — have fuelled political instability and polarization.
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