Civil unrest in nations formerly viewed as politically stable, such as Sweden and Brazil, is forcing global organizations to consider Political Risk insurance coverage. A recent paper by nationally recognized insurer called the need for Political Risk coverage a “top emerging concern” for global companies. This coverage is meant to help mitigate political exposures that are, normally, excluded from standard property policies to cover the risk to a company’s physical and financial assets. Some of the perils this policy will insure against are Terrorism, Riots, Deprivation or Confiscation of Assets, Strikes, Civil Commotion, Exchange Transfer Risk, Rebellion, and Insurrection. It is very difficult to model, price and determine the appetite for this coverage in the existing insurance marketplace. One thing that is important to note is that coverage is not guaranteed for the reason that rating basis in each country is based entirely on the underwriter’s evaluation of the risks in countries. Coverage is available in both the public market, through OPIC and Miga, as well as the private insurance market.
In developing or emerging nations or countries that are prone to civil strife this coverage cannot be viewed as the ultimate tool to mitigate a company’s political risk as it is also a reputational issue. Once a claim happens it will severely impact a company’s ability to get additional coverage at a later date and will hurt its ability to do business in other emerging markets. Therefore, as we have seen with some of our clients, establishing a relationship with the local government and people is also helpful in mitigating political risk. Additionally, establishing this type of relationship will help in discussions with underwriters, as having a good story to tell about how and why you do business in that specific country will not only provide the underwriter with a peace of mind, but will also help to reduce the cost on Political Risk insurance. Let’s face it, while Political Risk Insurance Coverage provides peace of mind; it comes at a price.
At The ALS Group we have structured Political Risk programs for large companies with equipment all over the world providing much needed resources to countries with developing infrastructure. Having an independent advisor to help design a thoughtful Political Risk program can help any company gain an edge over its competitors who don’t always understand the full implications of this risk. To discuss how we can help address the challenges your organization faces in managing global operations, contact Joe O’Rourke at [email protected] or at 732.395.4259.
