Geopolitical risk is becoming an accumulation challenge for insurers: Willis Re

As geopolitical disruption spreads across systems, territories and insurance classes, the next challenge may be understanding accumulation rather than predicting the next event.

Key points:
Event definitions are being tested
Losses increasingly cross classes
Dependencies reshape accumulation

By Jen Daffron, scenario & future trends lead, Willis Research Network

Hurricanes have footprints. Earthquakes have epicentres. Wildfires have burn scars. 

Geopolitical events are rarely so visible. 

A cyber campaign, coordinated sanctions regime or pressure on critical supply chains may unfold over weeks or months, span multiple jurisdictions and generate losses across several insurance classes. 

Many established catastrophe frameworks were developed around events with relatively clear temporal, geographic and physical boundaries. Modern geopolitical risks increasingly challenge those assumptions. They often unfold gradually, involve multiple actors and transmit losses through interconnected infrastructure, technology platforms and commercial relationships. 

For insurers and reinsurers, this raises a more fundamental question: what is the event? Importantly, defining the event is not merely a matter of classification. It can shape how losses accumulate across portfolios, territories and classes of business. 

That question matters because outcomes can depend materially on whether dispersed incidents are treated as a single event, a series of related events or separate losses altogether. A hurricane affecting hundreds of insureds will generally be recognised as a single event. In natural catastrophe modelling, event definition is often the starting point.  

“Geopolitical risk is becoming an accumulation challenge as much as a peril-modelling challenge.”

In geopolitical risk, event definition may be one of the most contested elements of the loss itself, particularly where attribution, intent, timing and policy wordings are disputed. The Nord Stream pipeline incident illustrated these complexities. Questions surrounding attribution, causation and how losses should be connected demonstrated that identifying the event may not be straightforward, even when physical damage is visible.  

From event to accumulation

Yet defining the event is only part of the picture.  

Geopolitical risk is becoming an accumulation challenge as much as a peril-modelling challenge. The industry's exposure may depend less on the initial trigger than on how losses develop, interact and ultimately aggregate across portfolios. 

A single geopolitical trigger could produce cyber losses, business interruption, supply-chain disruption and financial impacts across multiple insureds and classes of business. The greatest loss may not occur where the disruption begins. It may emerge later through contingent business interruption, operational dependencies or claims distributed across multiple territories and lines of business. 

This becomes particularly important because many modern geopolitical threats target dependencies rather than assets. Damage to a submarine cable, for example, may be physically limited while still disrupting communications, cloud services, financial transactions and international trade. Similarly, coordinated interference with critical infrastructure may have effects far beyond the immediate point of disruption. The critical question is how disruption propagates through interconnected systems and where insured losses ultimately materialise. 

Scenarios must evolve

What initially appears to be a collection of unrelated incidents may ultimately be part of the same accumulation event, generating losses across portfolios, territories and classes of business. A campaign involving infrastructure interference, coordinated cyber activity and economic pressure may produce losses that emerge gradually and through multiple channels. Determining how cross-class accumulation develops, and where reinsurance recoveries ultimately sit, can become considerably more complex than in traditional catastrophe scenarios. 

This raises an important question for the market: are existing event-response frameworks, scenarios and stress tests evolving quickly enough to capture the broadening range of plausible geopolitical threats? 

Regulators and market authorities are already responding to this issue. Since the outbreak of war in Ukraine, Lloyd's has increased its focus on how geopolitical risk is reflected within syndicate underwriting, scenario analysis, internal models and capital planning. Enhanced oversight through business planning reviews, stress testing, model validation requirements and capital guidance has contributed to a greater focus on geopolitical uncertainty and its potential implications for insurance markets and wider economic conditions. 

Interconnected risks, wider losses

Scenario-based approaches will keep pace with threats that unfold gradually, combine multiple methods of disruption and generate losses across classes, territories and portfolios simultaneously. 

The Willis Research Network's work on grey-zone aggression, together with forthcoming research into undersea infrastructure disruption, reflects this evolution in thinking. Both seek to better understand how disruption spreads through interconnected systems, where losses may accumulate across portfolios and how conventional event definitions may be challenged when geopolitical activity unfolds gradually or across multiple domains. 

The future of geopolitical risk modelling may lie less in forecasting the next conflict and more in understanding how disruption accumulates across interconnected systems. The question for the market is therefore not simply what happens next, but whether it can recognise an event as it unfolds, understand how losses propagate and identify accumulation before its full consequences emerge.

Jen Daffron can be contacted at: jen.daffron@wtwco.com

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