Political Risk Insurance
Insuring Against a Loss Caused by the Political Risks Inherent in Foreign Countries.
Does our organization need to purchase Political Risk Insurance?
How much does Political Risk Insurance cost?
What does Political Risk Insurance cover?
In these political times, these are all very important questions if your company is expanding globally. In this age of information, it can be overwhelming trying to sort through the maze of international insurance, especially the world of political risk.
Private sector investment continues to soar, especially in South America, the Middle East, China, and India. Nevertheless, there is a substantial investment that does not take place due to the perception of International Political Risk. Although political risks can never be eliminated, it is certainly possible to mitigate risk sufficiently allowing for an organization to invest in foreign infrastructures and commerce.
What exactly is Political Risk Insurance For?
There is no single definition of Political Risk. In general however, the term refers to adverse actions – or inactions, by governments that can impact the
assets, cash flow, or ownership of a firm trying to engage in international commerce. These risks are beyond control of the firm.
For Political Risk Insurance Coverages, Political Risks fall in to four general types:
- Confiscation, Expropriation, and Nationalization
- Currency Inconvertibility
- Contract Frustration
- War and Civil Unrest
Confiscation, Expropriation, or Nationalization is the Most Common Political Risk Insurance Concern
The most common form of Political Risk Insurance protects your firm from action or lack of action by Foreign Governments.
Political Acts that inhibit the owner of goods or services from use of their property or being compensated for their services. Everything from oil firms operating in the Niger Delta to banana farms in Latin America may be in Political Risk. According to MarektWatch (September 13, 2007), this was exactly the case with Exxon last year when Venezuela claimed 41.67% of profits from the Cero Negro drilling project, as their own (Expropriation). The dispute has ended up in arbitration with the International Centre of Investment Disputes (ICSID). Hearings with the ICSID can run from three to four years. In fact, last year Venezuela decreed that six foreign oil companies make the state-run oil firm, Petroleous de Venezuela SA a majority partner in four ongoing drilling projects. Further, Hugo Chavez has gone as far as nationalizing several important industries such as oil, electricity, and mining. Political Risk Insurance can also cover “creeping expropriation”, a series of events or acts that can be relatively insignificant on their own, however taken together over time, can be catastrophic. This is unfortunately all too common throughout the world. But it is, at the same time, an insurable risk. Insurers treat political risk as a country-specific phenomenon.
Political Risk Insurance Premiums are based on:
- What country your organization is operating in
- What industry it is involved in
Needless to say, these can vary greatly from agriculture or mining or manufacturing to construction or land development.
Political Risk Insurance can Be Customized to Suit Your Industry and Operations
There are many other types of coverage that can be customized to fit the requirements of each transaction. Doing business in emerging markets can benefit all parties – it can be economically rewarding as well as providing opportunities for growth and development in the local economy. It’s important to perform due diligence however, and protect your investments from unforeseen political events.
In addition to clearly understanding the question, "What is Political Risk Insurance", we can answer it. The team of International Insurance Brokers at Castle Rock Global will be happy to assist in obtaining these coverages, or answering any questions.
Click here for more information on Political Risk Insurance
At Castle Rock International Insurance Agency our job is to match the our clients with the right Political Risk Insurance Carrier with the Right Political Risk Insurance Coverage. For more information CONTACT US about Political Risk Insurance Programs.
What is Political Risk Insurance?
Bookmark This Page
