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; and
- Inconvertibility of foreign currency or the inability to repatriate funds.
Political risk insurance claims can be categorized as inconvertibility of funds, expropriation, and violent conflict.[1] As with any insurance, the precise scope of coverage is governed by the terms of the insurance policy. Providers of political risk insurance include public agencies and private insurance companies.
The underwriting of political risk insurance is a dynamic, growing business. As globalisation increases, there are more corporations doing more business in more places around the world with each passing year. Some of the changes occurring in the business are high growth, new product offerings, and a greater role for private capital.[2][3]
While political risk insurance policies are sometimes manuscripted for specific situations, the major political risk insurers have standard forms for the coverages that they issue. For "complex" or larger investments manuscripted policies are the norm and there may be several insurers providing cover in the form of a syndication, through co-insurance, or perhaps with the participation of a reinsurer on a facultative basis.
Political risk insurance claims were shown to increase with changes of political leadership in the country and violent conflict and decrease with political constraints.[1]
See also[edit]
References[edit]
- ^ a b Arel-Bundock, V., Peinhardt, C., & Pond, A. (2020). Political Risk Insurance: A New Firm-level Data Set. Journal of Conflict Resolution, 64(5), 987-1006.
- ^ Mishra, K.C. (May 5, 2006). "For political risk, insurance isn't all". Rustomjee. Diligent Media Corporation. Retrieved 2006-07-17.
- ^ Kambayashi, Satoshi (April 4, 2007). "Of coups and coverage: Political turmoil is costly. Unless you are fully insured". The Economist. Retrieved 2007-04-08.
External links[edit]
- The Islamic Corporation for the Insurance of Investment and Export Credit
- Multilateral Investment Guarantee Agency
- Investment Guarantees of the Federal Republic of Germany
- Daniel Wagner (July 2002). "Political Risk Insurance in Asia: Who Purchases It, Where, and Why". International Risk Management Institute. Retrieved 2006-07-17.
- Overseas Private Investment Corporation
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