What Experts Think

Understanding Political Risk Insurance Coverage Definitions

When it comes to insurance, one of the most important lines an insurer can offer for any company working in a developing country is political risk insurance.

Political risk insurance can be offered by financial institutions, a private insurance company, or a public agency. And while each policy will vary, they are all intended to do the same thing – safeguard companies who are undertaking long term projects and customers in emerging markets.

Unlike in stable, developed markets, there is always a risk of business delays and losses due to political instability and upheaval in emerging markets, and that’s what’s covered by political risk insurance coverage. Learn more about the most common political, economic, and financial issues covered by this type of insurance now.

  1. Contract Breach Or Contract Frustration

If a foreign government breaches its contract for any unfounded reason, a political risk insurance policy will cover the associated costs and losses, making one of these policies very important for risk management.

Contract frustration is also covered by political risk insurance. Frustration occurs when, due to unforeseen circumstances like a political revolution, one party in a contract is unable to uphold its end of the deal.

  1. Political Violence And Upheaval

Every form of political violence is covered by a political risk insurance policy, including civil war and wars abroad, armed rebellion or insurrection, civil disobedience that causes major upheaval, and other government action or action by citizens that could damage your profits and cause your project to fail, resulting in financial loss from forced abandonment.

  1. Expropriation Or Nationalization Of Property Or Assets

This is of particular importance to infrastructure developers. If their property is confiscated or nationalized by a government, they will be compensated for the financial loss of their private property.

An example of this would be when Venezuela, under Hugo Chavez, expropriated and nationalized 11 oil rigs from a US-based drilling company, Helmerich & Payne. Thanks to a political risk insurance company, the owners of these rigs were able to recover $43 million.

  1. Foreign Currency Inconvertibility, Inability To Repatriate Funds

Even if a business transaction in a developing market is successful, there is the risk that the funds may not be able to be converted back into the proper currency, or that the government or a bank may block the repatriation of funds. In this case, political risk insurance coverage will compensate for the loss.

  1. Business Interruption

Business interruption is often covered in tandem with other protected events. For example, a company that has its business interrupted by several weeks of rioting and protests may be covered for business interruption due to political violence.

  1. Government Default On Payments

In the event that a government simply refuses to pay you for the services or goods which you have rendered to them, your political risk coverage will cover this loss.

  1. Import/Export License Suspension Or Revocation

If your license is suspended due to political reasons, or revoked, political risk coverage will typically compensate you for the losses related to this loss. Note that this may not be true if you were conducting illegal activities, or if you were found to violate import/export regulations.

Coverage Varies Based On Your Policy – So Do Your Research!

Depending on the policy you purchase, your coverage may vary quite a bit. Every insurer offers a different type of political risk insurance, and the cost will also vary, based on the assets you need to protect, and a number of other factors.

To make sure that you have the political risk insurance that you need to protect your company, you should get help choosing a policy. At Niche Trade Credit, we have more than a decade of experience working with top insurers as an insurance broker. We can help you pick out the right political risk insurance product, and get a great rate. Contact us now to learn more.

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