A contested scenario will increase the threat of political violence, with potential supply chain impacts

President Donald Trump and Joe Biden are locked in the tightest presidential contest in decades, turning up the heat on what has already been a politically explosive year in the United States, marked by widespread protests and rioting.

If the result does become tied up in the courts as seems likely then there is the real risk that aggressive – perhaps heavily armed – groups on both sides may decide to take matters into their own hands, leading to civil unrest.

Already in late October, Facebook CEO Mark Zuckerberg said that he was worried about the increased risk of unrest associated with the election and over the weekend many businesses in Washington DC and elsewhere were concerned enough to board up their premises.

So far, while there have been isolated incidents – including some minor clashes with law enforcement and arrests – there have been no major security incidents.

A contested election scenario

But Jonathan Wood, Control Risks’ lead analyst on the US believes mass demonstrations and more significant protests remain likely over the coming days under a contested election scenario.

“Most demonstrations planned are to ’Protect the Vote’, and pressure the Trump administration and state officials to allow remaining votes to be tabulated,” he says.

“Any tangible manoeuvres to challenge, block, or prevent ballots from being counted would likely trigger increased protest activity.”

“We continue to assess that a contested scenario is likely to mobilise rival left- and right-wing militant activists, increasing the threat of political violence that poses a mainly incidental threat to business assets and personnel.”

But for European firms with an interest in the US one fact may offer some comfort: although civil disturbance in America can be high-profile, the events themselves – so far – tend to be localised.

Supply chain disruptions

According to data analytics and risk assessment firm Verisk, the United States has only seen one designated riot and civil disorder catastrophe event in the past 70 years that has included more than one state – although it did come in 2020.

“What we’ve learned this year is that the past isn’t always indicative of the future,” says Tom Johansmeyer assistant vice president – PCS Strategy and Development at ISO Claims Analytics, a division of Verisk – insurance solutions.

He believes that the riots in the United States this year suggest two distinct possible directions now.

“Following the George Floyd riots, which resulted in more than $2 billion in industrywide insured losses, we’ve learned that multi-state riots with large insured losses are certainly possible,” he says.

“If this pattern was repeated following the US presidential election, then insured loss would be high, and the impact on retailers and consumers could hit the global supply chain.”

However, what we also saw this year were many, smaller disturbances that occurred below the catastrophe designation, such as those in Chicago and Portland.

“If post-election civil unrest were to follow this pattern, then the impact to the insurance industry, as well as European and other non-US businesses, would likely be less substantial,” says Johansmeyer.

Ultimately, any unrest would have to be fairly significant to eclipse the vast Covid-19 disruption that firms are already living through.

“The scale and duration [of civil unrest] would have to be unprecedented, even relative to our newly reset expectations in 2020,” says Johansmeyer.

Expect the unexpected

But that’s not to say there won’t be problems, particularly for large, multinational retailers.

This year multi-state riots resulted in physical damage to locations across the country and large numbers of store closures, which resulted in the potential for rapidly accumulating business interruption. And this could happen again.

“Even a handful of stores with physical damage could result in very large claims because of hundreds of store closures for a single retail chain,” says Johansmeyer.

But while we can look to the recent past for clues as to what might happen next, the main lesson from the shocks of the last few years is perhaps that the only thing we can expect is the unexpected.

As the late UK prime minister Harold Macmillan said, all too often politics are driven by the sudden appearance of: “events, dear boy. Events.”

As a result, risk managers may see 2020 as a warning to fundamentally adapt their approach.

Tom Johansmeyer says: “Understanding and preparing for Strike, Riot and Civil Commotion (SRCC) risk on a strategic basis may require new approaches to forecasting, modelling, and risk management.”

Whatever happens, Americans and markets face uncertainty as wrangling over the outcome will almost certainly deepen social and political divides.

As analysis by Verisk Maplecroft, seen by StrategicRISK, warns: “regardless of what happens next, the 2020 presidential election has shed light on the emerging weaknesses of American institutions – weaknesses we are unlikely to have seen the back of.”