Author: Lenin Lopez
Tariffs, wars, sanctions and supply chain disruptions are now all recurring headlines. The result is an increase in business risks with direct financial consequences. What were once considered background issues for multinational companies operating in emerging markets have become a core risk for a broader set of companies.
Boards are paying attention. Investors are paying attention. Regulators are paying attention. Plaintiffs' firms are paying attention.
What's changed? The persistence and measurability of geopolitical risk.1 Over the last several years, market indicators tracking global political instability have remained elevated. This instability has been driven in part by structural forces such as US-China strategic competition, ongoing regional conflicts, trade fragmentation and the increasing use of economic tools — like sanctions, trade policy and investments — to advance foreign policy goals.1
This article will:
- Examine how geopolitical risk has evolved from a peripheral concern into a board-level priority.
- Discuss why geopolitical risk sits squarely within core governance responsibilities.
- Explain how companies can build the structures and tools needed to anticipate and respond to political risk in a disciplined way.
- Outline where insurance can play a powerful role in mitigating the impact of some geopolitical risks.
Political risk is no longer a theoretical concern
Political risk isn't new. As noted, what's changed is the frequency, scale and interconnected nature of geopolitical events.
Over the past several years, companies have been forced to navigate pressures that would once have been viewed as isolated events. Strategic competition between major global powers has reshaped trade relationships. Regional conflicts have produced ripple effects across energy markets, commodity prices and supply chains.
For many companies, the impact has been immediate and tangible. Some have faced a sudden loss of market access as sanctions regimes have expanded. Others have experienced supply chain disruption tied to trade restrictions or regional instability. In more extreme cases, companies have been forced to exit markets entirely or absorb significant asset impairments.
What ties these outcomes together isn't just the severity of individual events, but the speed at which they unfold and the limited margin for reaction once they begin.
As a result, many companies are factoring geopolitical risk into core business decisions, which has implications for how boards approach oversight.
Why political risk has become a board-level issue
Geopolitical risk now cuts across nearly every area where boards are expected to provide oversight.
Geopolitical considerations increasingly shape strategic decisions — such as where to invest, where to manufacture or which markets to prioritize. Trade fragmentation and industrial policy are influencing capital allocation in ways that would have been difficult to anticipate even a decade ago.
These developments place geopolitical risk squarely within the board's remit. What might once have been an operational or compliance issue now directly affects long-term value creation, enterprise risk management and corporate strategy.
Investors, regulators and other stakeholders also increasingly expect boards to be actively engaged in overseeing these risks. Disruptions tied to geopolitical events are no longer viewed as entirely external or unforeseeable. Instead, they raise questions about preparedness, disclosure and the robustness of risk management frameworks.
Rest assured that if there's any question as to whether a board carried out its fiduciary duties of oversight when it comes to geopolitical risk, plaintiffs' firms will be there to ask it.
For directors, the challenge isn't simply reacting to events as they arise. It's ensuring that the company has the visibility, expertise and processes needed to evaluate geopolitical developments before they negatively impact revenues and the business.
If geopolitical risk is now embedded in strategy and governance, the next question becomes more practical: What distinguishes companies that have managed this environment well from those that have struggled?
Lessons from the past several years
Looking across recent disruptions, we can see a pattern take shape.
Companies that invested early in geopolitical awareness tended to fare better. These companies weren't attempting to predict specific events, but rather tracking broader structural shifts, like strategic competition between major countries, evolving sanctions frameworks and policy-driven market realignment. That forward-looking perspective allowed these companies to adjust capital allocation, supply chain strategy and market exposure before a disruption fully materialized.
One area where some companies have been most vulnerable to being caught flatfooted has been their supply chains. Companies that relied heavily on a single geography, particularly in regions affected by trade tensions or industrial policy shifts, experienced outsized disruption. Compare that to countries that already began diversifying suppliers and production locations: These companies could adapt more quickly by accelerating regionalization strategies and reassessing global operating models.
At the same time, many companies underestimated a different dimension of exposure: the speed and scope of regulatory change. Export controls, sanctions and national-security-driven regulations are being deployed more rapidly than before and, in some cases, with little advance notice. Companies operating in sensitive sectors have found that market access can shift almost overnight, creating both compliance challenges and strategic uncertainty.
These lessons have begun to reshape how companies think about managing geopolitical exposure, not just operationally, but at the governance level.
How companies can approach political risk more effectively
In practice, this shift in governance is showing up in several ways:
- Companies that are well positioned to weather a proverbial geopolitical storm are formalizing geopolitical risk monitoring, moving beyond ad hoc tracking toward structured processes that integrate internal analysis with external expertise. The point isn't to predict individual events, but to identify patterns — like trade fragmentation, regulatory tightening or geopolitical alignment shifts — that may have downstream business implications.
- Boards that serve well-positioned companies are becoming more engaged on topics related to geopolitical risk. Many now receive regular geopolitical briefings that provide context on global developments, trade policy, sanctions activity and supply chain exposure. These updates can help ensure that directors are equipped to evaluate strategic decisions through a geopolitical lens rather than purely a financial one.
- Board composition is evolving. Some companies are intentionally adding directors with experience in government, international policy, national security or global markets.2 These perspectives can be critical in challenging assumptions and interpreting complex geopolitical developments.
- Scenario planning has taken on greater importance. Reacting to events in real time compares poorly to systematically modeling potential outcomes — from escalation in major regional power competition to expansion of sanctions regimes or export restrictions in key industries. Scenario planning helps companies to understand exposure and build contingency plans before disruption occurs.
Even with stronger governance structures in place, however, not all geopolitical risk can be mitigated through strategy alone. This is where risk transfer mechanisms begin to play a more prominent role.
The role of insurance in political risk management
Insurance is increasingly being used as a financial backstop against potential high-risk geopolitical events.
Political risk insurance, once concentrated in emerging markets, has expanded as geopolitical instability affects developed economies and global trade flows. Coverage now extends beyond traditional risks like expropriation to include breaches of contracts, currency inconvertibility and government actions that disrupt operations. This reflects a broader shift: Political risk is no longer tied to specific regions but embedded across global business models.
Within this broader category, certain coverages have become increasingly relevant as the nature of geopolitical risk evolves:
- Political violence insurance has become more important as civil unrest, terrorism and conflict-related disruptions affect a wider range of geographies.
- Modern policies often include business interruption coverage, helping companies address revenue loss when geopolitical events disrupt operations. Business interruption coverage is increasingly being structured to respond to geopolitical triggers, while crisis management policies support security events and operational disruptions.
- Many policies incorporate crisis response services, recognizing that resilience requires both financial protection and real-time operational support.
- Political risk rarely operates in isolation, and its effects often extend into adjacent areas of coverage. Directors and officers may face heightened scrutiny if geopolitical risks materially impact performance and are alleged to have been inadequately disclosed or managed. Such scrutiny typically materializes in the form of derivative claims alleging that directors breached their fiduciary duties. In these situations, a robust Directors and Officers (D&O) liability insurance program should respond during investigations and lawsuits.
- Trade credit insurance can protect against non-payment when political events disrupt financial systems or cross-border trade.
- Let's not forget personnel risk. A strong business travel accident insurance program, in concert with kidnap and ransom insurance, can make a meaningful difference.
These are just a few examples of how working with an experienced broker can help your company implement programs that alleviate the strain of geopolitical risks.
Consider, as well, this important factor: Once global tensions have exploded and are headline news, the relevant insurance product often becomes either too expensive or completely unavailable for new buyers. Insurance solutions work best when they're implemented as part of a proactive approach to risk management.
Questions boards might consider asking
Taken together, these developments raise a fundamental governance question: How actively is the board engaging with geopolitical risk as a driver of business performance?
In that spirit, what follows are a few questions that directors might consider asking.
