POLITICAL RISK INSURANCE

POLITICAL RISK INSURANCE

Political risk insurance can cover many possibilities, such as expropriation (e.g., government confiscation of property), political violence (e.g., acts of civil unrest or insurrection), the inability to convert local currency and repatriate it, sovereign debt default, and even acts of terrorism and war.

Political turbulence can cause assets to decline severely in value, or to be destroyed or confiscated and lose value altogether. Without political risk insurance, businesses would be especially reluctant to operate in developing countries with above average levels of political instability that threaten their assets and their ability to operate smoothly. 

While developing markets can present a great opportunity for business growth, they also present greater risks than developed markets. Political risk insurance protects against the hazard that a government will take some action that causes the insured to experience a large financial loss. 

Political risk insurance is a type of insurance that can be taken out by businesses, of any size, against political risk - the risk that revolution or other political conditions will result in a loss.

Political risk insurance is available for several different types of political risk, including:

Political violence, such as revolution, insurrection, civil unrest, terrorism or war,

Governmental expropriation or confiscation of assets,

Governmental frustration or repudiation of contracts,

Wrongful calling of letters of credit or similar on-demand guarantees,

Business Interruption….

While developing markets can present a great opportunity for business growth, they also present greater risks than developed markets. Policies are customized to each client’s needs. They can cover one or multiple countries and can have lengthy terms and multimillion-dollar coverage amounts.

Types of companies that might purchase political risk insurance include multinational corporations, exporters, banks, and infrastructure developers. Political turbulence can cause assets to decline severely in value, or to be destroyed or confiscated and lose value altogether. Without political risk insurance, businesses would be especially reluctant to operate in developing countries with above average levels of political instability that threaten their assets and their ability to operate smoothly.

The ability to lock in an insurance policy for many years—up to 15 years, for example, with one major issuer—is a key feature of political risk insurance. Similarly, if a new government came into power and changed import regulations in a way that meant the drone shipment could no longer enter the country, political risk insurance could cover the drone company’s loss.

For example, if a multinational corporation had a contract to provide drones to a foreign government, and after the corporation had manufactured and shipped all the drones, the government became insolvent and was unable to pay the balance owed, political risk insurance could cover the loss. Political risk insurance can protect physical assets, stock investments, purchase contracts and international loans.

Many business opportunities require years to carry out, and political conditions can change dramatically in a short time. If a business knows that it will be insured against political risks for years regardless of what happens, it can confidently proceed with activities that might otherwise be too risky to pursue.

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