Geopolitical risk emerges as the next frontier for actuaries

The global insurance and actuarial profession is under-prepared for a new era of geopolitical risk, and the skills developed for climate disclosure may be its best tool for catching up. That was the assessment of Rade Musulin, Principal at actuarial firm Finity, who presented at the 2026 UNSW Workshop on Risk and Actuarial Frontiers: Climate Risk and Insurance in Sydney.

Mr Musulin drew a line between the profession’s existing climate risk frameworks and the analytical demands posed by a world being reshaped by the conflict in the Middle East, the fracturing of global energy supply chains, and diverging decarbonisation strategies among major economies.

“We are looking at some serious geopolitical risk that’s going to be with us for a long time,” he said. “And even if, after Trump, things return to something more historically normal in the US, we’re not returning to the world of 2014 anytime soon.”

Oil shock and materials inflation hit insurance hard

The collapse of Strait of Hormuz traffic following the Iran conflict has already removed a significant volume of oil from world markets, with countries drawing down reserves at pace. “I believe we are looking at an oil crunch in the next three months, and there’s little we can do about it. You’ve seen massive spikes in the oil price, and elevated prices will persist for some time. And that’s starting to affect materials inflation in Australia.”

Mr Musulin said the ripple effects were already moving through supply chains. He cited forecasts of 30 to 40 per cent price increases for some plastic products, alongside rising costs for steel, concrete and aluminium. For the insurance sector, the implications for rebuilding costs were direct and near-term.

The pressure is compounding against a backdrop of record debt levels. Mr Musulin noted that Australian government and household debt were both at historically elevated levels, constraining the Reserve Bank’s capacity to respond with higher interest rates.

Learn more: Pricing catastrophe risk in a changing climate and economy

“Back in the 1980s, following oil shocks and inflationary pressures, central banks raised interest rates to very high levels (17% in Australia) to break inflation. They can’t do that today because a big percentage of mortgages would go into default. That could lead to some difficult choices for policymakers. It is also going to affect decarbonisation strategies.”

Energy crisis drives a split in global decarbonisation policy

He argued the energy crisis could produce two contradictory policy responses simultaneously. Some countries, including Australia, may double down on renewables as a national security imperative. Others, unable to exit fossil fuels within any realistic timeframe, will invest more heavily in oil and gas infrastructure precisely because of the disruption.

“Once you build it, it’s going to be there for 20 years or 30 years,” he said, referring to new fossil fuel infrastructure. “So it’s interesting that this Iran thing may really result in a divergence of global policies on decarbonisation, where you’ve got some countries like Australia that may double down on renewables and others that double down on fossil fuels.”

"Much of the electrified economy depends on critical minerals, which are in short supply and produced in limited countries"

RADE MUSULIN

Governments will also face a fiscal choice between investing in resilience and electrification, or subsidising household fuel costs through measures such as petrol tax holidays, adding further to already stretched public debt.

Critical minerals: the geopolitical risk hiding inside the clean energy transition

Mr Musulin cautioned against the assumption that a transition to renewables would eliminate geopolitical exposure. Critical minerals required for electrification are concentrated in a handful of countries, some of which are politically volatile: 74 per cent of global cobalt mine production is in the Democratic Republic of Congo, 67 per cent of nickel production is in Indonesia, and significant quantities of graphite, tungsten and rare earths are controlled by China.

“Don’t assume that just because we get rid of oil, we get rid of volatility. Much of the electrified economy depends on critical minerals, which are in short supply and produced in limited countries. And you may well end up with one country like China being able to turn off the tap and prevent you from making stuff,” he observed.

He pointed to the cost of tungsten, up 107 per cent, and broader volatility across copper, cobalt and other materials as early evidence of the price instability that would persist in a renewables-heavy economy.

On the emissions trajectory, Mr Musulin observed global emissions have continued to rise despite repeated international commitments, and the long-discussed target of 1.5 degrees of warming was, in his experience, not seen as achievable among the scientists working closest to the data in recent years.

“I didn’t meet a scientist at COP in the last several years who thought 1.5 was going to happen without overshoot,” he asserted. “We’re now looking at a path to 2.8 warming, and we’re certainly going to overshoot 1.5.”

How actuaries can apply climate risk skills to geopolitical risk

The central argument Mr Musulin advanced was that actuaries had the tools to address geopolitical risk, and the roadmap was already in front of them, in the form of the frameworks being developed for the Australian Accounting Standards Board for sustainability-related financial disclosure requirements.

“You can almost take the roadmap or the play you’ve been running to do ASRS disclosures and apply it to geopolitical risk,” he said. “Do you understand the relationship between the Federal Reserve and the US cutting interest rates, and the Australian Reserve Bank raising interest rates, and how that’s going to affect exchange rates? You’ve got to put together a roadmap for how you’re going to deal with the problem. You’ve got to build scenarios, develop risk management strategies, identify measures and metrics, build out data modelling.”

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Mr Musulin said Finity had spent considerable time developing geopolitical scenarios to inform actuarial analysis, borrowing from techniques long used in economics and public policy planning. The discipline of scenario analysis was well established in those fields, but had not been a standard part of actuarial training.

“You’re going to have to supplement traditional models with qualitative scenario analysis, which they don’t teach you on the exams. We need to be multidisciplinary and borrow skills that have been used in economics and in public policy development and apply them to our problems.”

The same principle applied to climate itself: historical data and rear-view-mirror modelling were insufficient when the conditions being modelled had been influenced by factors not in the past data.

Actuaries have a moral obligation to go beyond the numbers

Asked by the workshop audience about the insurance industry’s role in underwriting continued fossil fuel investment, Mr Musulin pointed to his 2008 presentation to the General Insurance Forum, where he predicted that address-level pricing would eventually create an insurance affordability crisis. He noted this as an example of how things that seem reasonable to do at the time can lead to issues down the road.

"We need to be multidisciplinary and borrow skills that have been used in economics and in public policy development and apply them to our problems"

RADE MUSULIN

“You have to ask yourself the question as an actuary: is your job to run the numbers and process the data, and think public policy is not your job?” he asked. “Or do we need to also think about this from moral, ethical, and other dimensions beyond just what’s on the spreadsheet and in the numbers? I think actuaries have an obligation to consider both the numbers and the effect our analysis has on people or systems.”

Top 5 insights for business leaders on geopolitical risk and the energy transition

1. Geopolitical risk is now a core business planning variable. The disruption flowing from the Iran conflict and the collapse of oil traffic through the Strait of Hormuz will be with us for some time, as will broader geopolitical risk. Supply chain costs, materials inflation, and insurance rebuilding costs are already moving. Businesses that have not built geopolitical scenario analysis into their planning cycles are operating with a significant blind spot.

2. The clean energy transition does not eliminate supply chain vulnerability. Replacing oil dependence with dependence on critical minerals shifts the risk; it does not remove it. Cobalt, nickel, tungsten, graphite, and rare earths are as geopolitically concentrated as oil, and price volatility in those materials is likely for the foreseeable future.

3. Record debt levels are constraining policy levers. Governments and central banks have far less room to manoeuvre than they did during previous energy crises. Businesses should not assume that interest rates or fiscal responses will play out as they did in the 1980s.

4. Climate disclosure frameworks are a ready-made template for geopolitical risk management. The scenario-building, gap analysis, roadmap development, and metrics identification that organisations have invested in for ASRS compliance can be applied directly to geopolitical risk. The methodological work does not need to start from scratch.

5. Professional obligations extend beyond the spreadsheet. Whether in insurance underwriting, actuarial practice, or broader financial services, pricing and advising on assets exposed to long-term geopolitical and climate risk carries dimensions that go beyond technical modelling. Organisations that treat it as a pure numbers exercise may miss important risks and opportunities.