Political risk insurance protects businesses from contract frustration that arises due to unstable political events in foreign markets. While nearly all types of companies that conduct international trade can obtain coverage for political risk from reputable financial institutions, contractors need to understand how political risk insurance protects them specifically. Contractors who work in the construction, engineering, and other contracting firms are protected with a political risk insurance policy from political violence, losses due to political issues, and foreign government action.
Why is political risk insurance important for contractors to have?
In today’s global economy, many contracting businesses are taking advantage of unique opportunities in emerging markets. While these opportunities can be a goldmine for businesses, they put the firm at long-term risk for political instability. By obtaining coverage through a political risk insurance policy, companies are protected from asset, income, and property losses due to government involvement, war, and terrorism. Investors, lenders, and the contracting firm itself are all protected from these losses with political risk insurance.
How are investors and financial institutions protected?
Political upheaval can leave investors vulnerable to a range of liability issues in foreign markets. Without protection, investors can have their profits, dividends, loan payments, and fees repatriated. For contracting firms with physical assets held in a foreign country, they leave their items vulnerable to damage from political violence. Foreign government instability and interventions can significantly impact financial institutions that engage in cross-border trade. Political risk insurance can protect these organisations from those risks, making a contracting firms business overseas a more stable investment risk for investors and lenders.
How are contractors protected?
- Contractors are protected from non-payment risks that occur from government and state-owned organisations instability in emerging markets.
- Contractors with large equipment and other physical assets held in a foreign country are protected from having these items damaged or becoming inaccessible from political violence.
- Political risk insurance also protects contractors in the mining, energy, engineering, and construction industries with performance guarantees.
What types of liability issues does political risk insurance protect against?
- Currency inconvertibility and Exchange Transfer Risk
- Expropriation, Confiscation, Nationalisation
- Economic Crashes and Political Upheaval
- War, Strikes, Riots, Rebellions
- Acts of Terrorism
- Permit Cancellations
- Delayed Payments
- Selective Discrimination
- Forced Divestiture and Forced Abandonment
- Arbitration Award Default
- Contract Frustration from Political Events
- Wrongful Calling
- Non-honoring of Sovereign Obligations
Socioeconomic issues and foreign government interventions can create environments unfavorable to investors, lenders, and exporters, preventing them from taking advantage of business opportunities that arise in emerging markets. For contractors and other businesses who engage in foreign trade, it’s impossible to predict if these issues will occur and how much they will impact them long-term.
Unfortunately, exposing a business to these risks leaves them vulnerable to losing their assets and income. For contracting firms, having political risk insurance coverage can make their business operations a more attractive investment for lending institutions, which can give them an advantage over their competitors.
At Niche Trade Credit, we can address these specific risks for contractors and other businesses with political risk insurance policies designed to protect your business from foreign instabilities. Our advisors will perform an in-depth analysis for a single situation, medium and long-term exposure risks with reliable underwriting and in-house country-risk analysis and political risks analysis from experienced advisers. See why people trust us to protect their business. Reach out to us today on 02 9416 0670.
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