Geopolitical effects and how they impact Asset Managers


June 2023

The global insurance market is not foreign to unpredictable macro events, including ever-present natural disasters, the recent reverberations of the Covid-19 pandemic, and geopolitical events such as the Ukraine-Russian war. The nexus between geopolitics, economics and business is becoming more pronounced.

The impact of these geopolitical risks can be felt across the entirety of the insurance ecosystem, and it is understandable that the dangers associated with wars, social unrest and terrorism (including cyber terrorism) are able to wield considerable influences on insurers and insurance cycles.

Not only are insurers concerned by the potential weight of claims arising from these events, but there is substantive discomfort arising from potential exposure to breaches of legal and regulatory sanctions. These breaches can result in severe penalties including fines and prison sentences.

Sanctions regimes are broadening and the jurisdictional reach of a policy is expanding. The UK sanctions regime has a range of implications for the insurance industry and insurers must be careful when providing coverage and paying claims to entities that may be exposed to sanctions. These restrictions may involve:

  • specific prohibitions of insurance activities, for example a financial prohibition on persons involved in the proliferation and use of chemical weapons. This type of restriction will have a direct impact on who an insurer is able to contract with for the provision of insurance services, and the specific type of insurance that is able to be provided in a given region;
  • direct effects such as the freezing of funds. This could cause issues in relation to payments such as claims payments and premiums; and
  • circumventions.

As a result of the above, insurers have looked to mitigate claims arising from these events as they can cause detrimental and systemic issues across their portfolio. Insurers insist on robust compliance frameworks to ensure effective screening processes are in place. Insurers also try to mitigate sanction exposures within insurance contracts with the inclusion of a various insurer-specific, market-wide or Lloyds Market Association (LMA) clauses, including the LMA3100 sanctions clause.

Considering the complexity of client and organisational structures in the asset management environment, unintended indirect exposure to underlying assets or clients that may have sanction restrictions imposed on them or their trade, can be difficult to manage.

Insureds themselves need to be cautious when reviewing how sanctions and restrictive clauses affect their coverage, as these clauses can be restrictive and potentially far-reaching. Insureds and their brokers will need to consider the language, noting, for example the use of ‘indirectly arising’ terminology which can have significant impact on claims.

Having a brokering partner that understands the restrictions that insurers impose, and challenges these restrictions where appropriate, is key. A knowledgeable and aware brokering partner will question generic approaches and assess whether they are fit for purpose – a key factor when working in the asset management sector.

If you would like further information on any of the above, please contact the Bishopsgate Financial Institutions team on