In today’s political climate, where news unfolds at a rapid pace and national and international events can quickly shift the ground beneath our feet, it seems impossible to predict what may come next. This uncertainty doesn’t just affect our daily lives – but it also poses serious risks for businesses of all kinds. For businesses operating in international markets the threat of political risk is especially acute.
Fortunately, there is a solution to this problem – political risk insurance. As the name suggests, this type of insurance offers protection against various types of political risk for businesses and investors alike.
Examples of Political Events Covered Under Political Risk Insurance
There are many different insurers that offer political risk insurance policies, each with its own unique coverage provisions. However, there are certain risks that you can expect to be covered under most political risk insurance policies, including:
Political Risks Caused by Government Actions
Breach of contract by the Government
One of the most common examples of political risks that are covered by political risk insurance is when a foreign government refuses to pay its contractual obligations.
For example, if you run a combat uniform factory and have been contracted by a foreign government to create customised police uniforms for them, but they suddenly refuse to make any payments after you have completed the work, political risk insurance can provide you with the financial coverage needed to protect your business.
Expropriation of business property
Expropriation of business property occurs when the government seizes ownership over a business’s assets without their consent and against their wishes. For example, an authoritarian regime may decide to nationalise key industries in order to pursue its agenda of centralising power and increasing state control over the economy. If this happens, your political risk insurer will most likely compensate you for the value of the lost assets.
Licence suspension
Licence suspension: In some cases, businesses may have their licence suspended by the government. This could prevent the business from being able to operate in the country and, as a result, lead to financial losses. Should your licence be suspended, political risk insurance can provide you with the financial coverage needed to protect your business.
Government defaulting on payments
If an unstable third-world government has contracted with a business to provide goods or services, there is always the risk that the government may default on its payments. Political risk insurance can help protect businesses from government default by providing financial coverage for losses.
Political Risks Beyond Government Control
- Political turmoil
- Currency devaluations and disruptions caused by terrorism
- Foreign currency and banking issues
How Much Does Political Risk Insurance Cost?
How much you’ll spend on your Political Risk Insurance coverage will depend on several factors. For instance, the value of the contract or goods involved and the creditworthiness of the government are both important considerations. Additionally, the country you’re doing business in or expanding to can impact the cost of your insurance coverage.
Ultimately, determining your exact premium will require an assessment of these various factors, as well as a thorough evaluation of your unique business needs and risk profile. However, with the right provider and competitive rates, you can feel confident that you’re getting quality coverage at a price that works for your budget.
Do You Need Political Risk Insurance for Your Business?
If you do business in any country other than your own, there’s a good chance you could benefit from political risk insurance. This is especially true if you operate in countries with unreliable or unstable governments. Contact Niche Trade Credit and let us help you choose the right Credit & Political Risk Insurance policy for your business.
*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.
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